Lockheed Martin shareholders sitting on strong year-to-date gains have a compelling options trade available that generates real income today regardless of where the stock moves.
Lockheed Martin (LMT) shares currently trade around $603.16, roughly 10% below their 52-week high, even as the company reported an all-time high backlog of $230 billion with accelerating sales growth.
The trade involves selling one covered call option on LMT expiring June 17, 2027, with a strike price of $660, approximately 9.4% above the current share price.
Each contract covers 100 shares and generates roughly $4,495 in premium upfront, income the seller keeps regardless of what the stock does between now and expiration.
That premium works out to approximately 8.8% annualized on the $60,316 position, making it a meaningful income stream for an investor already holding the shares.
If LMT finishes below $660 at expiration, the call expires worthless and the investor keeps the full $4,495 premium plus all 100 shares, representing about 7.5% income over 311 days.
If LMT finishes above $660, shares are called away at that price, and including the premium collected, the total gain works out to roughly 17% over the holding period, or about 20% annualized.
The trade does carry a real cost: any gains above the $660 strike price belong to whoever bought the call, not the shareholder who sold it.
The bull case for LMT heading higher is substantial, with the company’s book-to-bill ratio hitting 3.2-to-1 last quarter and management boosting its full-year sales growth forecast to an 8% year-over-year increase at the midpoint.
However, as one analyst noted on the latest earnings call, the stock price reflects “a lot of concern” despite those stellar demand signals, with execution risk front and center for investors.
Lockheed is in a “scaling mode right now,” simultaneously ramping production across a wide range of programs, including 10 different munitions programs alone, representing a significant operational challenge.
Converting a historic $230 billion backlog into smooth, profitable revenue growth at that scale is a task that could produce volatility, making the guaranteed upfront premium look attractive to cautious long-term holders.
LMT shares are up approximately 26.2% year-to-date, outpacing both the S&P 500 (SPY) at 13.7% and the industrial sector ETF (XLI) at 19.3%, giving existing shareholders a strong cushion heading into the trade.
For investors who believe the production ramp will be uneven, locking in income now while capping gains at a level 9.4% above the current price represents a disciplined and well-reasoned approach to managing a concentrated position.
