Its midweek and stocks are still channeling in the general U.S. markets; yet, options traders remain unfazed as we continue to record gains in our puts and calls. We continue with profitable ways today as we explore options of General Dynamics (NYSE:GD), a key player in the global aerospace industry.
General Dynamics with its market capitalization of $42.33B is an aerospace and defense company that offers a portfolio of products and services in business aviation; combat vehicles, weapons systems and munitions; military and commercial shipbuilding, and communications and information technology.
Making New Highs
The chart above shows how shares of General Dynamics have traded in the year-to-date period. The stock is up an impressive 32.57% since the markets opened this year. However, I am more impressed with the number of new highs reported within the same period. The stock has made 16 new highs and it is up 7.77% within the last one month.
You will also observe that the stock is trading above its 20, 50 and 200-day moving averages to lend credence to the bullish momentum in the stock. The bullishness of this stock is evident in its RSI Index, which currently stands at 72.66 to show a serious buying action on the stock.
Reasons to Buy GD Calls
- Diversified for Steady Revenue
General Dynamics is the third largest contractor dealing with the U.S. Department of Defense (DOD) in terms of revenue. General Dynamics comes third behind Boeing and Lockheed Martin. General Dynamics is also one of the two defense contractors that have the capacity for building nuclear-powered submarines.
Nonetheless, I am most impressed with how the company’s broad product offering has been building a steady revenue stream for the company. For one, the company reported backlog of $71.1B in the second quarter (Q2 2014) of 2014 to mark a 15% year-over-year increment in total backlog. The company also reports that the estimate of value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $28.4 billion. In short, the company’s total potential contract value, the sum of all backlog components stood at $99.5 billion.
- Strategic Cost-Cutting Initiatives
Yesterday, General Dynamics announced plans to consolidate two information and technology businesses into a new business unit. The company will consolidate its Information Systems and Technology business group, General Dynamics Advanced Information Systems and General Dynamics C4 Systems to form the General Dynamics Mission Systems.
General Dynamics had earlier consolidated its Weapons Systems business into the Munitions Business. In addition, the company’s U.K. business was also merged into the North American Mobile Communications operation earlier this year.
The announcement is in line with General Dynamics’ plan to lower costs and improve its competitiveness in the industry. I strongly believe that these cost-cutting initiatives will help drive performance and improve margins.
How to Trade GD Options
Shares of General Dynamic made a new high to 127.28 this afternoon at 2:03PM EDT and I am setting a $135 price target on the stock. I am bullish on General Dynamics and I am buying GD calls to put my money where my mouth is at. I think buying 10 contracts of the GD Jan 2015 130.000 call (GD150117C00130000) at an asking price of $3.20.
— Daily Option Alerts