Options Alerts
Action
LMT
10/08/08 - 09:48 AM EDT
Once-in-a-Blue-Moon Volatility Gets Bluer
Our thesis that implied volatility in defense contractor
Lockheed Martin (LMT: NYSE) had reached aberrant levels led
us to enter a short put spread in the front-month options.
We took a $5.40 premium in the expectation that the spread
between the strikes would narrow, which we had hoped would
have allowed us to close the position profitably.
While Lockheed Martin's implied volatility was (and
remains) at preternaturally high levels, since entering
this position, the spread has moved against us by some 50%
and both put strikes are now at in-the-money levels. This
is an unacceptable level of risk exposure and a signal to
us to cut our losses. So we will remove this position
pending greater resolution in the broader market.
The Trade:
-- Buy to close 10 October 110 puts (LMTVB).
-- Sell to close 10 October 100 puts (LMTVT).
Regards,
Rebecca Darst
Send email to optionsalerts@thestreet.com
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