General Dynamics seen holding gains

optionMONSTER

A large trader is betting that General Dynamics will hold current levels before the military contractor reports earnings later this month.

optionMONSTER's tracking systems detected the sale of 5,033 January 70 puts at the same second for $0.60 on Friday. This is clearly a new position because open interest in the strike was just 1,088 contracts at the beginning of the day.

GD fell 0.59 percent on Friday to close the week at $71.07 despite reporting that its Electric Boat subsidiary had won three Navy submarine contracts worth a total of $4.6 billion. Shares are trading at their highest levels since early April, but only after some wild swings in the last two months.

The stock fell sharply along with other defense names after President Obama's reelection but later bounced at support around $62, near its 52-week lows, and ran back up to resistance around the $70 level just before Christmas. Shares then dropped again along with bearish option activity as the so-called fiscal cliff approached, only to gap higher on the first day of 2013 after Congress and the White House broke their budget stalemate.

Friday's put seller is counting on GD to stay above the $70 strike price through expiration on Jan. 18, just days before the company is scheduled to release fourth-quarter results on Jan. 23 . If the stock is below that level, the trader faces the obligation to buy shares at an effective price of $69.40 once the $0.60 credit from the put sale is factored in. (See our Education section)

The trade made up the bulk of GD's total option volume of 6,376 contracts on Friday, which was 43 percent higher than its daily average.

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