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Put butterfly takes aim at Lockheed

David Russell (david.russell@optionmonster.com)

One investor is bracing for a drop in Lockheed Martin, wagering on a move to the key $80 level.

optionMONSTER's Depth Charge monitoring program detected the purchase of 10,000 January 85 puts for $2. Some 20,000 January 80 puts were sold for $1 and another 10,000 January 75 puts were bought for $0.57.

The trade cost $570,000, or $0.57 per contract. It will begin generating leverage below $85, with a maximum profit of 777 percent at $80. Gains erode at lower prices and the entire position becomes worthless at $75. (See our Education section for more on the strategy, known as a put butterfly .)

LMT rose 0.07 percent to $89.98 on Friday and has been climbing steadily for the last year. The defense contractor peaked above $95 earlier in the week, its highest price since the 2008 market crash, but then tumbled along with the rest of the market.

The butterfly trade targets the same $80 level where LMT hit resistance throughout 2011 and then bounced in May. Some chart watchers may consider that a likely support area if sellers begin unwinding the stock.

Overall option volume was 20 times greater than average in the session, according to the Depth Charge. Puts outnumber calls by 47 to 1.

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