Bulls Eye Lear Corporation (LEA) Amid Calls for a Split

Lear Corporation (LEA) is facing pressure to divide in two


Published on Feb 3, 2015 at 2:14 PM
Updated on Apr 20, 2015 at 5:09 PM

Lear Corporation (NYSE:LEA) is capturing the Street's attention today, after activist investor Mick McGuire wrote a letter urging the company to split its two main businesses into separate publicly traded entities. The shares are soaring on the news, up 5.6% to trade at $108.50, and fresh off a record high of $108.95. In the options pits, meanwhile, speculators are eyeing additional upside for the stock.

Diving right in, LEA calls are crossing at quadruple the average intraday rate, and the equity's 30-day at-the-money implied volatility has jumped 7.8% to 27.3% -- signaling elevated demand for short-term strikes. Most active is the now in-the-money March 105 call, which is seeing buy-to-open activity. In other words, these traders are banking on the shares to extend their lead north of $105 through the close on Friday, March 20, when the back-month options expire.

Today's call-buying bias is business as usual, as far as Lear Corporation (NYSE:LEA) is concerned. During the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 5,052 calls have been bought to open, versus just two puts. As a result, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.13 ranks just 2 percentage points from a 12-month low -- suggesting short-term traders have displayed an unusually pronounced preference toward calls, relative to puts.

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