My black swan has her wings - LMT into the toilet make puts go BOOM!

I could write a separate post about why I think we are about to experience a black swan event (or really a black swan period) and I'm not sure if this particular point I am going to discuss will cause it. Either way there is a ton of money to be made on LMT in the next few hours / days / weeks or months.

Hard to know exactly when the market will realize just how much POTUS has fucked up LMT's business and then from there I don't know if the market will immediately see the contagion risk for other US defense companies. It may take some time for this to sink in, not sure.

Ok so about LMT - Lockheed Martin is a defense contractor. The big thing to know for this is that they make the most expensive and capable fighter aircraft (war plane for shooting down other planes and/or dropping bombs) in the world. There are huge reliability and quality issues but end of the day nothing for sale by any company on the planet can beat it and nations across the globe (Canada, UK, Germany, many other nations across Europe, etc.) have placed orders ranging from a few billion dollars to hundreds of billions for F35 aircraft and after acquisition support and maintenance. The purchase price is roughly **$125,000,000** each (I'm not sure if that includes maintenance and support, I think maybe just support but there would be additional significant amounts of money going to LMT for maintenance over time).

With hundreds of billions of dollars of orders on the books, many more statements of intent from nations like Portugal, Turkiye, etc. and the associated revenue streams from maintenance, ammunition, etc. LMT has been looking pretty great since Russia's 2022 invasion of Ukraine which sent nations across the globe scrambling to buy the bets military tech they could afford.

But that brings us to today. Where things are suddenly changing drastically and in ways that are likely not reversible, at least not in any reasonable timeframe. The market hasn't yet priced this in and I don't know exactly when that will happen. Could be during the April earnings release. Could be tomorrow when trading begins. Could be anytime between now and then.

See the thing is; when you are a nation that has managed to pull together a couple of billion dollars to buy military aircraft that you intend to use for the next 20, 30 maybe even 40 years, you tend to really think through the decision. There are many factors involved; not the least of which is how reliant are you on the manufacturer (and the nation that manufacturer is based in) for support and maintenance. Obviously if you can bring support and maintenance to your own nation then the dollars spent at least stay in your own country however that isn't always possible, especially with cutting edge top of the line systems, like the F35. Anyone who owns and operates the F35 platform will need unfettered access to LMT resources and specialists in order to get anywhere close to 100% of the benefit you might expect to get from having these in your air force. Just keeping them flying without access to LMT might prove impossible, let alone using all the fancy bells and whistles which in some cases rely on access to US military satellites in orbit.

The other piece to this puzzle is that these planes take A LONG time to build. Canada ordered 88 planes for about $9,000,000,000 back in 2023 and they are expected to get their first batch of 16 sometime next year. And they have only paid for those first 16 so not much they can do about that. But there are 72 F35 planes at roughly $125,000,000 a pop that they haven't paid for but LMT has in their order books. This is Canada I'm speaking about, the nation that POTUS keeps insisting will become part of the USA (whether they want to or not) and has been using economic extortion to try and extract trade concessions. That already made the idea of buying these additional 72 plans dicey but then you had POTUS suddenly cancel all military maintenance and support contracts between US defense contractors and Ukraine. This was walked back a bit but it made everybody sit up and think about the fact that POTUS was so mercurial that the idea of buying incredibly expensive weapons that could be hobbled on the word of POTUS maybe isn't the best idea.

Since close of market on Friday the following has happened:

1. The nation of Portugal (which had previously said they intended to buy some F35s) has announced they will look for alternatives that are manufactured in Europe. These aren't firm orders but they do represent part of the potential customer based for the F35.

2. Then Turkiye, who has wanted to purchase the F35 for years and was prevented from doing so due to some geopolitical stuff announced that they would buy 40 fighter aircraft from the UK. Now these planes aren't nearly as good (or expensive as the F35) however the idea that Turkiye would invest what will end up being hundreds of millions of dollars into aircraft that aren't F35s and more importantly aren't from their usual military aircraft supplier (the USA) means that any future plans to purchase the F35 is now in doubt.

3. Canada has now announced they intend to look for alternatives to the F35 instead of moving forward with the purchase of an additional 72 planes. I don't know if this will mean they are breaking a contract or maybe it is just rescinding a statement of intent. That is a question I don't have the answer to at the moment but it really doesn't matter. These were sales that are currently reflected in the LMT stock price that are now, for all intents and purposes, cancelled.

So that is my play - I am going to be buying more puts on LMT to add to what I already have over time (current position below)

https://preview.redd.it/8sccerz7s5pe1.png?width=1229&format=png&auto=webp&s=550517e5f82379d8e6f412d617ccb9a12bd68505

I was already expecting a complete market crash as a result of POTUS' choices and actions. I've made some nice money in the last three weeks as a result. However I think we are just getting started and SOMETHING is going to lead to a bear market, possibly a depression. This thing with LMT could be the black swan that does it because when the market realizes the above is the reality of the situation there is a logical next thought: what about OTHER platforms and systems, whether made by LMT or other US defense contractors.

Buying Patriot air defense systems or already own some and think you might need to buy some ammunition? Maybe time to look around at diversifying your supplier for anti aircraft and anti missile systems in case POTUS decides he doesn't like you.

What about new tanks and armored transports? Probably not the kind of thing that relies as heavily on the manufacturer but spare parts and software updates will still be needed and if you have to switch to another supplier for additional vehicles down the road you will now have multiple platforms in operation which complicates logistics, training and operations, tactical operations, etc. That can impact decision making on new purchases.

Naval vessels? Advanced radar systems to use on the weapons platform (that flies, drives or sails) which you are purchasing from a different manufacturer? These are the most complex technical systems on the planet and often have components from different manufacturers. LMT might make the plane but it uses things made by RTX and other defense companies.

And this isn't something that you can easily fix. POTUS can promise to be nice and stay on his best behavior.... which I don't think he would even be willing to say let alone follow through on. But even if he did say it are militaries around the world going to want to have to rely on that? Can they risk having their nation's ability to defend itself hinge on the good will of someone who could favorably be described as inconsistent?

I don't know if the collapse of the US defense sector will lead to a complete market crash. But I think it has a chance. Either way I'm confident something will do that and in the mean time LMT puts seem rife with opportunity at the moment.