Legg Mason (LM) Showing Bearish Price Movement

Posted: Thursday, September 02, 2010 9:10 AM EDT
By: Market Intelligence Center Staff

Legg Mason (NYSE: LM) closed yesterday at $26.51. So far the stock has hit a 52-week low of $24.00 and 52-week high of $34.83. Legg Mason stock has been showing support around 25.22 and resistance in the 27.16 range. Technical indicators for the stock are Bearish and S&P gives LM a neutral 3 STAR (out of 5) hold rating. LM appears on the Investors Observer Hedged Dividend Income list. For a hedged play on this stock, look at a Feb '11 26 covered call for a net debit in the $23.31 area. That is also the break even stock price for this trade. This covered call has a 170 day duration, provides 12.07% downside protection and an 11.54% assigned return rate for a 24.78% 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 '12 15 Call and selling the Feb '11 26 call for a $9.40 debit. The trade has a 170 day life and would provide 7.96% downside protection and a 17.02% assigned return rate for a 37.00% annualized return rate (for comparison purposes only). Legg Mason has a current annual dividend yield of 0.64%. [THA-Seven Summits Research]