Three Options Trades – Netflix, United Technologies and Lockheed Martin 
Tuesday, January 21, 2014

**OPTIONS TRADE 1: Buy the NFLX Mar 2014 400.000 call (NFLX140322C00400000) at or under $5.00, good for the day. Place a protective stop limit at $2.00 and a pre-determined sell at $8.50.

**OPTIONS TRADE 2: Buy the UTX May 2014 120.000 call (UTX140517C00120000) at or under $1.60, good for the day. Place a protective stop limit at $0.70 and a pre-determined sell at $3.00.

**OPTIONS TRADE 3: Buy the LMT Mar 2014 155.000 call (LMT140322C00155000) at or under $3.40, good for the day. Place a protective stop limit at $1.35 and a pre-determined sell at $5.50.

by Ian Harvey

January 21, 2014

Netflix

**OPTIONS TRADE 1: Buy the NFLX Mar 2014 400.000 call (NFLX140322C00400000) at or under $5.00, good for the day. Place a protective stop limit at $2.00 and a pre-determined sell at $8.50.

Netflix (NASDAQ: NFLX), an Internet subscription service streaming television shows and movies, is probably the hottest stock to report this week – Wednesday 22nd January after markets close -- making an all time high just a few weeks ago, but down almost ten percent since the beginning of the year.

Netflix is expected to report FY 2013 fourth-quarter EPS of 66 cents on revenue of $1.17 billion, compared with a profit of 13 cents a share on revenue of $945.24 million in the year-ago period. Netflix is trading at around $331.01 a share. Over the past 12 months, the stock has gained 239.8 percent.

The company has already tempered expectations at a talk it recently gave. With the tempered expectations for a company that's as levered to aerospace and commercial construction as United Technologies is, you've got a terrific set-up for higher prices.

Morgan Stanley downgraded the stock to underweight on January 7 with a $310 price target. A key reason is increasing competition in 2014. “Even if Netflix’s churn levels fall to record lows, we estimate that over 48MM out of 92MM residential broadband households (~53%) would need to watch Netflix over the next 12 months to meet our 2014E domestic sub forecast of 39MM. If monthly churn is closer Netflix’s long-term average of ~4%, the number of households would need to reach ~52MM (~57%).”

On January 16, Nomura initiated coverage on the stock with a neutral rating and $360 price target. “As the addressable market for Internet video continues to grow, we believe Netflix will maintain its position as the leading Internet video programmer. However, we believe Street models already forecast healthy expectations for subscriber growth; while we are positive on original content and cable box integration, we do not believe these are material subscriber acquisition channels. Netflix benefits from latent pricing power, in our view, but a price raise is unlikely. As such, we await a more attractive entry point for the stock.”

United Technologies Corp.

**OPTIONS TRADE 2: Buy the UTX May 2014 120.000 call (UTX140517C00120000) at or under $1.60, good for the day. Place a protective stop limit at $0.70 and a pre-determined sell at $3.00.

United Technologies Corp. (NYSE: UTX), providing high technology products and services to the building systems and aerospace industries worldwide, is expected to report FY 2013 fourth-quarter EPS of $1.55 on revenue of $17.09 billion, compared with a profit of $2.26 a share on revenue of $16.44 billion in the year-ago period on Wednesday 22nd January, before markets open. United Technologies is trading at around $114.17 a share. Over the past 12 months, the stock has gained 33.4 percent. The company has a market capitalization of $104.76 billion.

Morgan Stanley restated their overweight rating on shares of United Technologies Corp. in a research note issued to investors last Thursday. The firm currently has a $121.00 price target on the stock.

“We expect an inline quarter, with a $1.52 EPS estimate, a penny below consensus of $1.53,” the report noted. “We see little change to management’s assumptions from the Dec Analyst Day, which is largely supportive of accelerating organic growth across the board. We see 6% and 4% org. growth at Otis and CCS, respectively. At Otis, we see Equipment sales outpacing Service, consistent with past quarters, which puts modest pressure on margins. Importantly, China E&E orders should continue to remain strong. On the Aero side, we believe moderating military declines and stable aftermarket trends should combine to drive Q/Q improvement at both Aerospace segments, though we see some risk to our ~10% organic growth estimate at UTAS.,” the firm’s analyst commented.

Several other analysts have also recently commented on the stock. Analysts at Citigroup Inc. downgraded shares of United Technologies Corp. from a buy rating to a neutral rating in a research note to investors on Wednesday, January 8th. They now have a $125.00 price target on the stock, up previously from $124.00. Separately, analysts at TheStreet reiterated a buy rating on shares of United Technologies Corp. in a research note to investors on Sunday, January 5th. Finally, analysts at FBR Capital Markets raised their price target on shares of United Technologies Corp. from $110.00 to $128.00 in a research note to investors on Tuesday, December 31st. They now have a market perform rating on the stock.

Five equities research analysts have rated the stock with a hold rating and sixteen have issued a buy rating to the company’s stock. The stock has a consensus rating of Buy and an average price target of $117.09.

United Technologies Corp. last announced its earnings results on Tuesday, October 22nd. The company reported $1.55 earnings per share (EPS) for the quarter, beating the consensus estimate of $1.54 by $0.01. The company had revenue of $15.50 billion for the quarter, compared to the consensus estimate of $16.18 billion. During the same quarter in the previous year, the company posted $1.37 earnings per share. The company’s revenue for the quarter was up 2.8% on a year-over-year basis. On average, analysts predict that United Technologies Corp. will post $6.16 earnings per share for the current fiscal year.

Lockheed Martin Corp.

**OPTIONS TRADE 3: Buy the LMT Mar 2014 155.000 call (LMT140322C00155000) at or under $3.40, good for the day. Place a protective stop limit at $1.35 and a pre-determined sell at $5.50.

Lockheed Martin Corp. (NYSE: LMT), a global security and aerospace company principally engaged in the research, design, development, manufacture, integration, and sustainment of technology systems and products, is expected to report FY 2013 fourth-quarter EPS of $2.07 on revenue of $11.33 billion, compared with a profit of $1.73 per share on revenue of $12.10 billion in the year-ago period. Lockheed Martin is trading at around $153.05 a share. Over the past 12 months, the stock has gained 63.6 percent. The company has a market cap of $49.02 billion.

The stock currently has a dividend yield of 3.6%. LMT has a PE ratio of 16.0. The average volume for Lockheed Martin Corporation has been 1.6 million shares per day over the past 30 days. The stock has a beta of 0.57 and a short float of 2% with 4.87 days to cover. Shares are up 0.1% year-to-date as of the close of trading on Thursday.

On Jan 10, 2014, Zacks Investment Research upgraded Lockheed Martin Corp. to a Strong Buy.

They see that Lockheed Martin has been witnessing rising earnings estimates for 2014 on the back of continuous order flows from the Pentagon’s funding list. In the recent past, the company has received a series of contracts from the U.S. Department of Defense (DoD), ranging from big to small tickets. These defense deals are a testimony to the wide range of products at the disposal of Lockheed Martin.

Recently, Lockheed Martin received two production contracts from the U.S. Air Force, valued at $449 million in total. The contracts call for the company to continue production of its Joint Air-to-Surface Standoff Missile, and the extended range variant. The two contracts include production of 340 baseline missiles and 100 ER missiles.

Apart from the big wins, the company received small contracts, which kept the order book ticking amidst harsh budget austerities. Again, the company seems confident of selling F-35 fighter jets to foreign clients, which would to some extent compensate for lower defense spending at home. Most of the company’s top line is expected to come from foreign governments over the next five years.

This well-known defense behemoth delivered positive earnings surprises in 3 of the last 4 quarters with an average beat of 14.00%. Along with earnings growth, Lockheed Martin has boosted its dividend rate. From a quarterly payout of 11 cents a share in 2002, it has increased to $1.33. Its annual dividend is now $5.32, which has a 3.6% yield.

The solid performance of the company in 2013 is also reflected in its traded price. Lockheed’s share price closed at $148.66 on Dec 31, 2013, reflecting a gain of 64.8% over the last twelve-month period.

These strong fundamentals will definitely have a positive effect on the company’s price.

The Recommended Trades:-------------

**OPTIONS TRADE 1: Buy the NFLX Mar 2014 400.000 call (NFLX140322C00400000) at or under $5.00, good for the day. Place a protective stop limit at $2.00 and a pre-determined sell at $8.50.

**OPTIONS TRADE 2: Buy the UTX May 2014 120.000 call (UTX140517C00120000) at or under $1.60, good for the day. Place a protective stop limit at $0.70 and a pre-determined sell at $3.00.

**OPTIONS TRADE 3: Buy the LMT Mar 2014 155.000 call (LMT140322C00155000) at or under $3.40, good for the day. Place a protective stop limit at $1.35 and a pre-determined sell at $5.50.



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