$LMT Options Intelligence

🎯 SELL LMT DEC 19 500/515 PUT SPREAD

I recommend a bear put spread on LMT with strikes at 500 and 515 expiring December 19, 2025, because the term structure shows fairly priced options with elevated implied volatility (IV) at 51.9% and an IV rank of 100%, strongly favoring premium selling. The stock is currently trading at $447.98, well below the 200-day moving average ($464.13) and the 50-day MA ($479.43), with bearish technical indicators (MACD negative, RSI neutral but trending lower). Additionally, heavy put buying volume and unusual activity in deep OTM puts (500, 505, 515 strikes) suggest downside protection demand but also overpriced puts to sell against. The upcoming earnings on January 27, 2026, mean we should avoid expirations before that date to capture any earnings move, so December 19 is the closest near-term expiration suitable for a defined-risk bearish spread.

Sell LMT Dec 19 515 Put, Buy Dec 19 500 Put
Stock Price: $447.98 | Entry: Approximate net credit of $4.50 (based on typical bid/ask spreads and elevated IV)

📊 Trade Metrics

• Max Profit: Net credit received (~$450 per spread) if LMT stays above 515 at expiry
• Max Loss: Difference between strikes minus credit = $1,000 - $450 = $550 per spread
• Breakeven: 515 - $4.50 = 510.50
• Risk: Defined and limited to $550 per spread
• Win Probability: Moderate, as current price is well below 515 but market expects volatility to contract post earnings
• Days to Expiration: 14 days

📈 Term Structure & Volatility Analysis

• Baseline 90-day Historical Volatility: 19.1%
• Current IV: 51.9% (very elevated, 100% IV rank)
• Clean IV for Dec 19 options: ~24.1% (fair value relative to baseline)
• Earnings Multiplier: 5.12x (high expected earnings volatility)
• Strategy: Sell premium to capitalize on elevated IV and expected mean reversion post-earnings
• Calendar Opportunity: Limited due to close expiration dates, but selling near-term puts is favored

📈 Greeks & Volatility

• Delta: Short 515 put has moderate delta (~0.3-0.4), long 500 put lower delta (~0.2)
• Theta: Positive (time decay benefits seller)
• Vega: Negative (benefits from IV contraction)
• Current IV Rank: 100% (strong premium selling environment)
• Put/Call Volume Ratio: 17.09 (very bearish, heavy put buying) indicating high premiums

🎯 Why This Trade

The term structure shows that while options are priced with elevated IV reflecting expected earnings volatility, the clean IV (excluding earnings premium) is closer to historical norms, indicating a good premium selling opportunity. Lockheed Martin’s technicals are bearish with price below key moving averages and bearish MACD. The recent news includes a dividend increase and strong AI-driven UAV demonstration, but institutional investors like Marshall Wace LLP have trimmed positions slightly, indicating some caution. The unusual high volume in deep OTM puts reflects hedging or bearish sentiment, which inflates put premiums, making selling a put spread attractive. Selling the 515/500 put spread collects rich premium with limited risk, betting on no sharp downside before earnings.

📊 Pro Analysis

• Current IV: 51.9% vs Historical: 19.1% baseline (IV more than doubled)
• IV Rank: 100% (strongly favors selling premium)
• Expected Daily Move: ±$14.66 (3.27%), which supports selecting strikes 50+ points above current price for downside protection
• Market Maker Max Pain: $500 (close to short put strike)
• Technical: RSI 38.93 (neutral), MACD negative, price below 200-day MA
• Dividend: Quarterly $3.45 paid Dec 30, ex-date Dec 1 (already passed, minimal impact on trade)

🔍 Earnings Date Check

Earnings on January 27, 2026 — recommended expiration Dec 19 is before earnings but close enough to avoid excessive time premium decay, capturing near-term volatility without risking earnings gap exposure.

💡 Trade Management

• Entry: Place limit order to sell spread at $4.50 credit (midpoint of bid/ask)
• Target: Close spread at 50% of credit received (~$2.25) for profit taking
• Stop: Buy back spread if LMT price falls below 495 to limit losses
• Time Stop: Close 2 days before expiration to avoid gamma risk

📅 Economic Events: Fed Rate Decision and CPI on Dec 10 may add volatility, monitor closely.

🔒 Pricing Validation

• 515 Put intrinsic value: $67.02 (strike 515 - stock 447.98) but options are out of the money for short puts (since stock below strike) — check actual prices, but elevated IV inflates premiums
• Spread pricing respects put-call parity and intrinsic values
• Debit spreads cost more than intrinsic, credit spreads collect premium on OTM strikes

🔍 Market Overview

The market regime is cautious with elevated volatility due to upcoming Fed decisions and CPI data. Lockheed Martin faces mixed signals: operational advances in AI UAV tech and dividend growth support, but technicals and institutional trimming suggest limited near-term upside. The defense sector remains supported by geopolitical tailwinds (Ukraine-related defense spending). The stock trades below key moving averages, indicating bearish momentum, but the high IV and put buying reflect hedging and uncertainty. Selling a defined-risk put spread aligns with this environment, capturing rich premiums while limiting downside risk.

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This trade balances premium income from elevated IV with a defined risk profile, suitable for a moderately bearish to neutral outlook on LMT near-term. Confidence level is moderate-high given the technicals, term structure, and market sentiment. Risk is controlled by the vertical spread structure.