HAL9000
Long

Has this endless downtrend found its bottom?

NYSE:LM   LEGG MASON INC
2 months ago
SIMPLE REBOUND STORY?
Inexpensive stock (P/BV=0.75) bullish consensus (BUY) and 25% target upside.
Has found a gently up-sloping channel since Feb 2016.
Currently trading at the bottom of channel.
Shows technical signs of turnaround.
Has rebounded less than the market.
Seems to have found a floor at $28.

PLAIN VANILLA LONG STRATEGY
Buy at the market.
Target $34.50/share.
Stop-loss $28.00/share.
Reward/Risk = 2x

CREDIT OPTIONS STRATEGY
Buy Dec             16 2016 $31 call = $0.55/share
Sell Dec             16 2016 $27 put = $0.60/share
Credit = $0.05/share
Worst-case: Go long at the low of the up-channel and 8% above the 52w low
(indicative prices, ref. last close)

snapshot
a month ago
Trade active: Those who went for the options strategy can:
- Let the put expire worthless and pocket $0.60/share
- Sell the call at an indicative $1.10/share
- Make a total of $1.15/share (c. 3.5% yield)
a month ago
Comment: Slight stock price erosion in the past couple of days probably due to profit taking post publication of monthly assets showing outflows of $2.8bn (-0.39%). Does not change the LONG scenario on this name.
a month ago
Comment: LM Has been consolidating at our first stop level in below-average volume post publication of disappointing AUM figures (0.39% outflow). KEEP HOLDING while awaiting earnings on Jan 27.
a month ago
Trade active: We are still channel-bound and above the $28 stop-loss. One major broker/asset manager last week signaled record inflows into the market during Dec, which should bode well for all asset managers including LM.

Keep position and sell puts expiring on Feb 17, 2017 with a $28 strike to bring in $0.55/share in premia (11.11% annualized).

More aggressive traders can sell the same maturity (Feb17) put with a $29 strike, cashing in $0.80/share (16.16% annualized).
10 days ago
Comment: LM Just released AUM numbers for December. As expected, every single line (Equities, Fixed income, Alternatives, etc.) shows improvement from the previous month (total AUMs $710.4bn vs. $707.3bn). This is in line with our scenario of improving market conditions and flows.

We have been expecting such news flow to progressively prop the shares, as it weighed down on the shares the previous month. Expect LM to trade higher today, with shares already indicated slightly up.

The upcoming earnings release and guidance towards the end of the month should provide the next leg up. Any share weakness today should be bought into. Current holders should KEEP HOLDING.
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