The Wheel Strategy on LMT (Lockheed Martin): Full Setup, Sizing, and Real-World Numbers
What's in this guide
1. Why LMT as a wheel candidate 2. The risks — political + program-specific 3. Strike selection on LMT 4. Position sizing 5. A worked example — full cycle 6. Special considerations (dividend, earnings, defense budget) 7. The mistakes wheelers make on LMT 8. Next stepsLMT (Lockheed Martin) is the largest US defense contractor — maker of the F-35 fighter jet, patriot missile systems, and Sikorsky helicopters. For wheelers, LMT offers a rare combination: a solid ~3% dividend, moderate IV, and defensive characteristics from long-term US government contracts. But LMT is also politically exposed — defense budget debates, program cancellations, and geopolitical shifts all affect share prices.
This guide walks through the complete wheel setup on LMT — how to size, which strikes to sell, and what to expect through a real cycle.
1. Why LMT as a wheel candidate
- Solid dividend (~3% yield) — 22+ years of consecutive increases
- Moderate IV (~20-28%) — decent premium capture
- Deep options liquidity — tight spreads
- Long-term US government contracts — highly visible multi-year revenue
- F-35 program dominance — largest defense program in history
- Geopolitical tailwind — elevated defense spending trend
2. The risks — political + program-specific
- Political risk: defense budget debates + potential program cuts
- F-35 concentration: single program is 25%+ of revenue
- Cost overruns: defense programs regularly face charges
- Congressional oversight: procurement policy changes affect timing
- International sales risk: foreign military sales subject to political approval
3. Strike selection on LMT
| Situation | Suggested delta | DTE |
|---|---|---|
| Normal conditions (IV rank 30-60) | 0.20-0.25 delta | 35-45 DTE |
| Elevated IV (political news, IV rank 60+) | 0.15-0.20 delta | 35-45 DTE |
| Low IV (IV rank <30) | 0.20-0.25 delta | 30 DTE (shorter) |
| Before major budget votes | Wait for outcome | Post-vote |
4. Position sizing
LMT at $490 requires $49,000 per contract. Sizing rules:
- Max 20-25% of wheel capital in LMT specifically
- Never let LMT + RTX + NOC + GD exceed combined 25% (defense concentration)
- Keep 30%+ cash cushion — political news can move LMT 5-10%
5. A worked example — full cycle
LMT at $490, IV rank 40, no earnings for 40 days. You have $49,000 for this position:
| Day | Action | Result | Cumulative P/L |
|---|---|---|---|
| 0 | Sell 1 LMT $475P, 35 DTE, 0.22 delta | Collect $600 premium | +$600 |
| 24 | Put worth $290 (52% profit). Buy to close. | Free capital. | +$310 net |
| 24 | Sell 1 LMT $478P, 35 DTE, 0.22 delta | Collect $625 premium | +$935 |
| 59 | LMT at $495 at expiration; put expired worthless. | Kept full $625. | +$935 |
$935 on $49,000 in 2 months = ~1.9% for cycle, ~11% annualized on premium alone. Add dividend when assigned (~$3.30/qtr per share = ~2.7% additional annual yield).
6. Special considerations
A. Dividend
LMT pays ~$13.20/year per share (~2.7% yield at $490). Quarterly dividends ~$3.30. 22+ years of consecutive dividend increases. When holding shares, dividend income is approximately $330/quarter per contract — meaningful passive income.
B. Earnings
LMT reports quarterly. Moves can be 5-10% on program milestones, cost overruns, or full-year guidance changes. Standard rule: no new positions 7-10 days before earnings.
C. Defense budget + political news
Defense budget debates (annual NDAA vote in December), CR/omnibus negotiations, program cancellation risks all move LMT. Watch: Congressional Armed Services Committee news, DOD budget submissions.
7. The mistakes wheelers make on LMT
Mistake #1: Treating LMT as recession-proof
LMT is defensive relative to consumer names but not recession-proof. Political budget cuts + program cancellations can cause 20-30% drawdowns even in "up" markets.
Mistake #2: Overallocating to defense
LMT + RTX + NOC + GD correlate heavily. Cap combined defense at 25% of wheel capital.
Mistake #3: Ignoring F-35 concentration risk
F-35 is 25%+ of LMT revenue. Any program setback (technical issues, budget cuts, foreign customer defections) hits LMT disproportionately.
8. Next steps
- Verify LMT fits your account — $49,000 per contract, max 20-25% of wheel capital
- Use 0.20-0.25 delta, 35-45 DTE puts as the default
- Watch defense budget calendar + earnings specifically
- Time CCs around ex-dividend to capture the ~3% dividend
For real weekly wheel trades I run in my own account, the Omega Membership shares the trade plan. Or grab the free Starter Kit.
Ready to shadow real wheel trades?
The Omega Membership is the weekly trade plan I run in my own account — Sunday market prep, live calls, and the members' Discord.
See the membership → Free Starter KitFrequently asked questions
Is LMT a good stock for the wheel strategy?
Yes. Pros: solid ~3% dividend (22+ years of consecutive increases), moderate IV (~20-28%), deep options liquidity, long-term US government contracts providing visibility, geopolitical tailwind from elevated defense spending. Cons: political budget risk, F-35 concentration (25%+ of revenue), cost overrun risk, Congressional oversight.
How much capital do I need to wheel LMT?
One contract requires ~$49,000 at $490/share × 100. Practical minimum for responsible sizing (LMT not exceeding 20-25% of wheel capital) is around $200-245k+ total capital.
What delta should I use for LMT puts?
0.20-0.25 delta as the default in normal IV conditions (~20-28%). Drop to 0.15-0.20 delta if IV is elevated during political budget news. LMT is moderate volatility with meaningful political-event exposure.
How does LMT's dividend affect the wheel?
LMT pays ~$13.20/year per share (~2.7% yield) — approximately $330/quarter per contract when holding shares. 22+ years of consecutive increases. Meaningful passive income during assignment periods. Time CCs to expire AFTER ex-dividend dates to capture dividend.
Should I wheel LMT through defense budget debates?
Reduce size during major budget votes (annual NDAA in December, CR/omnibus negotiations, DOD budget submissions). Political news can move LMT 5-10% on program decisions. Standard practice: no new positions in the 24-48 hours before major congressional votes.
What are the biggest risks of wheeling LMT?
Five specific ones: (1) political budget risk — defense spending debates and program cuts, (2) F-35 concentration (single program 25%+ of revenue), (3) cost overrun risk on defense programs, (4) Congressional oversight changing procurement timing, (5) international sales risk from political approval requirements.
LMT vs RTX for the wheel — which is better?
Both work; different profiles. LMT is more concentrated in F-35 and missile systems. RTX (Raytheon Technologies) is more diversified (Pratt & Whitney aerospace engines, missile systems, commercial aerospace). Similar mechanics; wheeling both increases defense concentration (cap combined at 25%).
When should I skip wheeling LMT?
Four situations: (1) during major defense budget votes (December NDAA, CR/omnibus), (2) 7-10 days before earnings, (3) during acute F-35 program concerns, (4) if you already have significant defense exposure through RTX/NOC/GD (concentration risk).