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Options Point to Bounce in Defense Contractor

General Dynamics is drawing call activity as Wall Street analysts appear conflicted over the outlook for GD and other defense contractors.

Options traders are playing a May 40-45 call spread that is looking for General Dynamics to bounce after dropping more than 30 percent in the last quarter.

  • Who Owns General Dynamics Now?

In the first 30 minutes of trading Monday morning, more than 7,000 contracts changed hands, much of them the purchase of the May 40 calls and the selling of the May 45 calls to buy the spread for $1.25, according to OptionMonster's tracking systems.

GD shares are roughly flat today at $36.45 but were trading over $60 in January and over $50 for most of February. They set a new 52-week low of $35.28 on Friday.

At least one industry analyst, at Morgan Joseph, predicts that defense contractors will benefit from higher spending under the Obama administration. At the same time, however, Sanford Bernstein lowered its price target for GD from $61 to $45.

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Defense Rivals:

Boeing

Northrop Grumman

Lockheed Martin

Raytheon

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Pete Najarian is a professional investor, CNBC contributor, regular co-host of CNBC's "Fast Money" and co-founder of OptionMonster.com.

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