Legg Mason Call Volume Hits Annual High on Activist Chatter

The May 35 call is popular today

by Karee Venema

Published on May 15, 2019 at 12:34 PM

Legg Mason Inc (NYSE:LM) stock is trading up 1.9% at $35.35, amid unconfirmed chatter Nelson Peltz's Trian Fund Management is pushing for plans to increase returns for LM shareholders. Buzz about the potential activist investor campaign follows the company's turn in the earnings confessional earlier this week, with LM reporting a stronger-than-anticipated fiscal fourth-quarter profit.

Options traders are getting in on the action, too. At last check, 2,292 calls were on the tape -- 28 times what's typically seen at this point in the session, and volume at a new annual high. By comparison, just 225 puts have traded, though this is still three times the expected intraday amount.

Most of the action has centered at the May 35 call, where it looks like new positions are being purchased for a volume-weighted average price of $0.53. If this is the case, breakeven for the call buyers at the close this Friday, May 17 -- when front-month options expire -- is $35.53 (strike plus premium paid).

Looking closer at the charts, the last time LM settled a week north of this mark was June 22. However, the stock is currently pacing for its highest daily close since June 25, and is on comfortably on track for a seventh straight weekly win. This surge has brought the shares north of their 320-day moving average, and clearing recent congestion in the $34 region.

legg mason stock daily price chart on may 15

Short sellers could be contributing to LM's upside, too. Short interest jumped 30.2% in the two most recent reporting periods to 4.84 million shares. This represents a healthy 5.7% of Legg Mason stock's available float, or 6.2 times the average daily pace of trading -- plenty of fuel for a short squeeze.

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