Shares of defense contractor Lockheed Martin (LMT) moved higher on news of a potential war between Russia and the Ukraine. One trader is betting that shares will decline in the next few weeks as those fears decline.
That’s based on the March $390 puts. With 23 days until expiration, 7,787 contracts traded against a prior open interest of 155, for a 50-fold jump in volume. The buyer of the puts paid $13.05 to make the trade.
Shares last traded for about $387, which leaves the option trade about $3 in-the-money. The stock has traded as high as $399 in the past year. The company’s shares are up about 14 percent over the past year, generally in line with the S&P 500.
The stock isn’t particularly expensive at 15 times forward earnings. Earnings growth came in at 15 percent over the past year, although the company tends to see fairly steady growth over time thanks to its large amount of defense contracts.
Action to take: Shares yield 2.9 percent at current prices, but traders can likely buy shares on a pullback as the current war fears end.
In the meantime, traders might like the put option, which looks like a reasonable trade given the current geopolitical conditions, however, things could take a turn for the worse at any time.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.