LMT Beurre Part Trois – Buy Out of the Money Straddle – Violation of the Hatch Act

I reiterate my recommendation of LMT Beurre, however, in light of the FBI letter on Friday, a cautious and speculative hedging strategy, called a straddle is imperative for those who already purchased the out of the money puts or who shorted the LMT stock.

The 1/20/17 $270 calls selling for $0.70 are an inexpensive hedge to purchase against an extreme loss in the out of the money puts or shorting LMT stock.  More risk seeking accounts can even go as high as the LMT $280 1/20/17 calls selling for $0.25, depending on Trump’s emphasis on defense spending leading up to the election.  Trump, would most likely, close the gap on the F-35A program and it is forecasted, “that if the funding lands before year-end, it will generate $5.7 billion in operating cash flow for 2016. If not, that number would fall to $5 billion.”  Chief Financial Officer Bruce Tanner said on a third-quarter earnings call with analysts, “We remain hopeful that this situation will be resolved soon, but have concerns with receiving collections before year-end.”

The rally in LMT from $248.37 on Friday, shortly after the FBI letter was released, fizzled as the stock drove up to $250.17 but retreated to being down $0.53 to close at $248.00.  Adding fuel to the fire was the announcement that Turkey would purchase a shipment of F-35As in 2018 followed by orders in 2021 and 2022 and India is seeking a contractor to build and assemble fighters in India.

Adding confusion is a GOP insider from the Bush administration, Richard Painter and Senate Minority Leader, Harry Reid, publishing extreme criticism, even breaking of the law, of James Comey, the FBI director who authored the letter.

CHK opinion is the same, since beyond the fundamentals of an exponential increase in demand of LNG, Trump administration federal spending estimates would demolish the dollar and barometers of inflation like crude oil and gold will soar.

Beware the Ides of October

Bezos sells record amount of stock, second inside sale in 3 months.

Amazon Spooks Investors With Big Spending Heading into Holidays.

Why Amazon’s Holiday Season Forecast Is Disappointing Investors

A survey of investors by Bank of America Corp. showed cash holdings match the highest levels since the terror attack on the U.S. on Sept. 11, 2001.

There is still downside risk even though the stock is down after hours.  Taking a look at the Options chain, we recommend, for speculative accounts only, the $730 2/17/17 AMZN puts last sale at $21.25.  For less risk seeking accounts, the $800 2/17/17 AMZN puts are selling for $44.10 and are nearly in the money.

An additional short or put idea is in the console vs. smartphone gaming business.  The largest player is Electronic Arts (NASDAQ: EA).

Even with an installed base of 101 million Wii units, 80 million PlayStation 3 systems, 80 million Xbox 360 consoles, 13 million PlayStation 4 machines, 7 million Xbox One units, and 7 million Wii U systems, the console business can’t compete with the sheer billions of smartphone and tablet users around the world.

“Practically everyone in mature markets now has a smartphone and the majority has access to a tablet,” van Deelen says. “In emerging markets, the smartphone is often their first device that is connected to the Internet. With an installed base of billions, the audience is enormous on a global scale. A console is not a must-have device like smartphones, and in a growing number of cases, tablets are. Mobile devices, which aren’t purchased to play games on, introduce new consumers to games.”

The overall question now seems to be not if Microsoft will exit the game business, but when and how.

For speculative accounts only, we recommend the EA 3/17/17 $75.00 puts selling for $3.35.

L-3 Drives Overbought Defense Contractors Down

LLL (NYSE) -$11.54 or -7.76% dragging the entire defense sector down.  Gives another chance at bearish position on LMT.

Earnings Beat

Our consensus called for third quarter EPS of $1.82, and the company reported adjusted EPS of $1.88.

Revenue Miss

The company posted revenues of $2,505 million in third quarter, compared to our consensus estimate of $2,561 million.

Reiterate, For Speculative Accounts Only, recommend purchase of LMT 1/20/2017 $225 out of the money puts, bid $1.70, ask $2.20.  Try to split the difference for $1.90-$1.95.

More Snow Expected into Thursday in Northeast; Chilly Temperatures Dominate

A weather system will bring the possibility for snow, even at lower elevations, into Thursday.

One area of concern is the Poconos of northeast Pennsylvania and adjacent areas of northwest New Jersey where freezing rain is forecast to fall overnight into early Thursday. Ice accumulations are expected to be light, generally a few hundredths of an inch. However, roadways and walkways could become slick.

U.S. Crude Supplies Unexpectedly Decline

Crude stockpiles fell 553,000 barrels last week, according to the Energy Information Administration. A 2 million barrel gain was forecast by analysts surveyed by Bloomberg, and a 4.75 million barrel increase reported Tuesday by the industry-funded American Petroleum Institute.

WTI for December delivery rose 11 cents to $50.07 a barrel at 10:35 a.m. on the New York Mercantile Exchange. Brent for December settlement slipped 13 cents to $50.66 a barrel on the London-based ICE Futures Europe exchange.

As of 10/26/2017, for Speculative accounts only, I reiterate Bullish signal on the out of the money 1/20/2017 $7 calls selling for $0.41.

Also, I reiterate, for Speculative accounts only, purchasing the out of the money 1/20/2017 $225 puts on LMT for $1.80.

LMT Beurre Part Deux

LMT Beurre Part Deux

(Part Un Publié ici)

Closing price 10/25/16 – $249.26 +$17.10 (+7.37%)

For Speculative Accounts Only, 1/20/17 $225 out of the money puts selling for $1.80.

Lockheed Martin Corp (NYSE – LMT), the Pentagon’s No. 1 weapons supplier, said a retroactive fix for insulation problems in the fuel tanks and lines of F-35 jets already in production caused deliveries to be “light” this quarter.

Also, a negative technical indicator is that the volume on yesterday’s jump did NOT exceed 3 Month Average Volume.

F-35: Lockheed’s upbeat outlook rests on getting contracts for the next two batches of F-35 production, known as lots 9 and 10, and has been paying out of pocket for months while contracts are negotiated with the Pentagon to keep up the production schedule.

To help cut costs, the Pentagon has been adamant that lots 9 and 10 should be negotiated together under one $14 billion contract that includes 140 jets. But the Wall Street Journal reported Tuesday that the Pentagon may award a contract for just lot 9, which includes more than 63 planes, as talks over pricing have dragged on well past expectations.

Stock: Shares jumped 7.4% to finish at 249.26 on the stock market today, gapping above its 200-day and 50-day moving averages, as Lockheed also raised its dividend 10% to $1.82 and added $3 billion to its share buyback program, according to IBD.  The buyback and dividend indicate LMT does not have any future contracts to invest in to support its 20.76 P/E.

The OV-10 Bronco’s primary responsibility was to deploy during counterinsurgency operations in the 1960s. Initially retired from service in 1995, it has made multiple appearances throughout the 21st century.

Defense Media Networks contributor, Robert F. Dorr, stated the OV-10 left retirement status to fly operations under the Combat Dragon program established by then-Combatant Commander, Gen. Stanley McChrystal. The Bronco effectively completed its combat missions under McChrystal’s leadership that his successor, Gen. James Mattis, followed suit. Mattis reported to the Senate Armed Services Committee that the Bronco is a “robust, complex aircraft like an F-15E Strike Eagle to support troops patrolling rural villages.”

The F-35 Fighter

The fifth generation strike fighter and America’s largest acquisition program to date is supposed to be primary asset to defend air superiority and support combat missions overseas. With advanced systems such as the low observable technology, helmet mounted display, and distributed aperture system, the F-35 was dubbed as the jet of the 21st century. However, such capabilities do not seem to support all objectives of war, especially conquering the war on ISIS.

[Related: Is the F-35 Ready to Defeat ISIS?]

Ryan Brown of CNN Politics discussed that the reinstatement of the Broncos was a trial phase to conclude whether the aircraft could better support operations better than a technologically advanced strike fighter such as the F-35. The fighter jet was deemed completely too fast to provide close air support and it would cost 10 times more than the Bronco just to complete missions. Criticism over the continued issues with the fighter as well as major expense provided an alternative to reinstate the OV-10 for an investigative period to defeat ISIS.

The above option contracts depend upon whether a hawk or dove is elected into office, that’s why I’m extending the expiration to 1/20/2017 to reduce downside risks.

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