Over one to two months NOC is expected to keep falling toward 500, possibly 480, while longer term a wedge pressures price but is expected to break upward. He passed on buying puts now: earnings tomorrow and a 1.16 put/call ratio give no confirmation of the decline.

So, I have a position on Northrop Grumman, the defense giant that saw a huge influx of money into its stock and others like Lockheed and General Dynamics, while the market saw a massive sell-off on Friday as these names rose.

Now, today, those same names are back on the market again . So, based on my technical analysis, I will see if we can find a setup to buy a "put" option on these defense stocks and see if we can find a trading opportunity.

I believe Northrop Grumman may continue to decline towards 500, if not to a lower level around 480 .

In the long term, if we were considering a long-term buy option (LEAP) on NOC stock, I would be watching this wedge as it continues to put downward pressure on the price, and is expected to break upwards.

But what I'm looking for is short-term trading. Good? It's all about timeframes and the perspective you're looking at it from . In the short term, thinking about a period of one to two months, I am thinking of buying a put option where my first target would be a strike price of 500.

This gives us about $12 of room for NOC stock to continue to fall if that happens.

make sure to go up to the top left as we look at NOC because it is Northrop Grumman, which is the deal we are looking at today.

So, at the moment, NOC is trading intraday at 512.

defensive stocks like NOC tend to get lower trading volume .

NOC will also announce its earnings tomorrow. Sorry, I'm thinking of that crash in implied volatility (IV crush). Yes, this is correct. exactly. If we want to enter to buy a "put" option now and the profits will be announced tomorrow, then that's all .

Currently we are at the 89 percentile. So, we will have to pay extra to get an execution price of 500, let alone 505 and the like. The trading volume does not confirm our conviction.

Yes, this situation means that we will have to refrain from entering into the "bot" option just before the earnings announcement. Our thesis doesn't really fit with the series as a whole.

Well, we will ignore this because we are smart traders and we handle our money intelligently. Because the trading volume of the "bot" to the "call" is at 1.16. Money doesn't confirm anything for us.

Earnings reports are due tomorrow, which means that the implied volatility crash (IV crush) will have a significant impact. So, that's another matter, and the percentage cut for implied volatility is at 86, which means the premium is extremely expensive.

Again, this contradicts what we want to do. The execution price is 500, the "bot" option is at a delta of 0.38, which is lower than the range we usually prefer to be in , which is between 0.4 and 0.6.

There are no advantages here. Therefore, we will ignore this opportunity.

Some might ask us: "Jake, Tabby, what would change your minds about trying this based on your thesis?" Well, what we can do is if the implied volatility is in the middle range at least between 50 and 60% and we have a few days before the earnings announcement for our thesis to be validated.

Or if the volume of the put to call trades confirms the downward trend of this stock, then if the ratio was between 2.0 and 3.0, it would be a strong bearish reading and we could bet on a good trend.