Legg Mason (LM) Is Up 1.5% In Premarket Trading

Posted: Monday, November 23, 2009 9:17 AM EDT

Legg Mason (NYSE: LM) closed yesterday at $29.53. So far the stock has hit a 52-week low of $10.35 and 52-week high of $33.70. Legg Mason stock has been showing support around 28.83 and resistance in the 29.97 range. Technical indicators for the stock are Bearish and S&P gives LM a weak 2 STAR (out of 5) sell rating. LM appears on the Investors Observer Hedged Dividend Income list. For a hedged play on this stock, look at a May '10 29 covered call (LM EC) for a net debit in the $25.33 area. That is also the break even stock price for this trade. This covered call has an 180 day duration, provides 14.22% downside protection and a 14.49% assigned return rate for a 29.38% annualized return rate (comparison purposes only). A lower cost hedged play for this stock would use a longer term call option in place of the covered call stock purchase. To use this strategy look at going long the LM Jan '11 12.50 Call (ZPM AV) and selling the May '10 29 call (LM EC) for a $13.55 debit. The trade has an 180 day life and would provide 11.78% downside protection and a 21.77% assigned return rate for a 44.00% annualized return rate (for comparison purposes only). Legg Mason has a current annual dividend yield of 0.40%. [ABR-Seven Summits Research]

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