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Lockheed Martin (NYSE: LMT - option chain) is trading lower today after the company reported a third-quarter profit of $797 million, or $2.07 per share on revenue of $11.1 billion. Analysts had forecast a profit of $1.83 per share, but with revenue of $11.4 billion. Since expectations have been raised throughout the market, it seems that just beating estimates is no longer enough to satisfy traders. Weaker revenues plus a forecast of slowing growth in the coming years is dragging LMT down. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on LMT.This morning, LMT opened at $72.72. So far today the stock has hit a high of $73.48 and a low of $72.10. As of 11:20, LMT is trading at $72.70, down $4.29 (-5.6%). The chart for LMT looks neutral and S&P gives LMT a neutral 3 STARS (out of 5) hold ranking.
For a bearish hedged play on this stock, I would consider a December bear-call credit spread above the $80 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 7.5% return in two months as long as LMT is below $80 at December expiration. LMT would have to rise by more than 10% before we would start to lose money. Learn more about this type of trade here.
LMT hasn't been above $80.35 (the break-even point on this trade) since July and has shown resistance around $77 and $79 recently.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in LMT.
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