Highly leveraged bet on Legg Mason

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Legg Mason refuses to break below its 200-day moving average, and now on trader is looking for a rally with a highly leveraged play.

optionMONSTER's Heat Seeker tracking system detected the purchase of 7,500 June 32 calls for $0.30 and the sale of a matching number of June 27 puts for $0.25, resulting in a net debit of $0.05. Volume was more than triple open interest in both strikes.

LM Chart LM rose 1.26 percent to $30.47 yesterday. The mutual-fund operator is up 9 percent in the last month, compared with a 5 percent loss for the S&P 500 during the same period and even bigger declines for rivals such as Franklin Resources, T. Rowe Price, and Waddell & Reed.

LM, which has typically lagged its peers, stunned investors with better-than-expected revenue and earnings on May 10. It also announced plans to restructure, expand overseas and buy back shares. The stock gapped higher on the news before getting knocked down along with the rest of the market.

Since then, it has clung to the key $30 level and managed to stay above the key 200-day moving average. Some chart watchers may consider patterns as those bullish signals.

Yesterday's option trade, known as a bullish combination, is an extremely leveraged way to play for a rally and will double the investor's money for every $0.05 that LM trades over $32.05. It will also generate losses if the stock falls below $27.

The transaction pushed overall options volume in the stock to more than three times greater than average.

(Chart courtesy of tradeMONSTER)



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


This article appears in: Investing , Options

Referenced Stocks: BEN , LM , TROW , WDR

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