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VIDEOPeltz Investment Has Legg Mason Jumping
Activist investor to shake things up.
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The target has been in the July $24 strike, which has traded over 6,400 contracts compared to just 266 of prior open interest. The buying has spilled over into the $23, $25, and $26 strikes, which have also seen volume that exceeds prior open interest by at least 3 times. The buying is driving implied volatility up 10% on the day. The company doesn’t report earnings until July 23 -- 4 days after these options expire -- so someone seems to be looking for a preannouncement or an external catalyst to boost shares higher.
Other money managers such as T Rowe (TROW), Franklin Templeton (BEN) and BlackRock (BLK), are also performing well today. But none are seeing the type of speculative call-buying that’s occurring in Legg Mason.
In the past, I’ve written about using unusual option volume as a trigger for establishing trades. More often than not, the option action is just part of a larger position -- such as overwriting, a spread, or even a liquidation -- and therefore doesn’t represent a strong opinion in which someone’s betting on a big move.
But in this case, the action meets several criteria that suggest it might be smart money: First, the buying is being done in big blocks of 1,000- and 500-contract transactions by an institution.
Second, the volume of the buying in the $24 calls is spilling over into other strikes. This suggests that market makers -- or those taking the other side and selling the $24 calls to facilitate the trade – aren’t simply hedging with stock, but are buying other call options to provide some upside leverage.
Market makers rarely piggyback onto order flow -- unless they believe it’s smart money initiating the trade. While this would be a speculative play, it looks like shares of Legg Mason might have room to run.Twitter: @Minyanville/minyanville-markets-2
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