The Red-Hot Defense Stock With Bargain-Bin Options – Schaeffers Research (blog)

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While the Dow snapped its epic winning streak yesterday, one stock remains red-hot: military and aircraft manufacturer Lockheed Martin Corporation (NYSE:LMT). As escalating tensions with North Korea lift defense stocks, LMT shares are flirting with record highs and aiming for a ninth straight win, marking the longest current winning streak of all S&P 500 Index (SPX) stocks. What’s more, Lockheed Martin stock is already tied for the lengthiest run of 2017 so far, after scoring a 14-session rally back in February. Against this backdrop, LMT options volume is on fire today — and it looks like near-term traders are picking up the contracts at a relative bargain.

Defense Stocks On a Roll

Below are the current lengthiest winning streaks of S&P 500 stocks, as of last night’s close, courtesy of Schaeffer’s Senior Quantitative Analyst Rocky White. LMT shares top the list, and fellow defense stocks Northrop Grumman Corporation (NYSE:NOC) and L3 Technologies Inc (NYSE:LLL) also made the cut, on pace for their seventh and sixth victories, respectively, today.

longest stock winning streaks

longest stock winning streaks of 2017

Lockheed Martin Stock Eyes 9th Straight Win

As alluded to earlier, Lockheed Martin stock is eyeing its ninth straight win today, and earlier touched a record high of $305.54. The shares have skyrocketed 33% since their October lows, with help from their 50- and 80-day moving averages, and were last seen up 1.6% just shy of $305.

lockheed martin stock chart today

LMT Calls Fly Off the Shelves

At last check, nearly 5,000 Lockheed call options have changed hands — four times the average intraday pace, and nearly double the number of LMT puts exchanged. It looks like some speculators may be betting on more upside for LMT stock this week, buying to open the weekly 8/11 305-strike call.

The appetite for bullish bets on the defense stock is nothing new, though. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity’s 10-day call/put volume ratio of 1.70 is in the 78th percentile of its annual range. In other words, options buyers have picked up Lockheed calls over puts at a much faster-than-usual pace in the past two weeks.

What’s more, near-term options traders can pick up LMT contracts at a relative discount. The shares’ Schaeffer’s Volatility Index (SVI) of 12% is in just the 4th percentile of its annual range, suggesting Lockheed’s short-term contracts are attractively priced, from a historical volatility standpoint. Plus, the stock’s Schaeffer’s Volatility Scorecard (SVS) of 67 indicates LMT shares have exceeded options traders’ volatility expectations by a healthy amount during the past year.

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