Monday, March 31, 2008

Lehman Brothers (LEH) Bounces

More than any other stock at the moment, Lehman Brothers (LEH) is the poster child for investor anxiety about the stability of financial institutions. The stock has been the subject of countless rumors, aggressive put buying, and at least one near death experience (that looks ominously like a funnel cloud on the chart below) when the stock plunged to 20.25 on March 17th.

Today the shorts jumped on LEH right after the opening bell and drove the stock down to 35.30 (-6.8%) – the lowest level since March 17th. The stock has since rallied above 39 , where it appears to be finding some support.

Not surprisingly, options activity in LEH continues to be frenzied, with implied volatility at a dizzying 113, but still down about 26 points from Friday. Call activity for the April and May options is heaviest at the 50 strike, with July calls most active at 60, the October calls at 55, and January 2009 call volume highest at 50. Given the options activity, bulls may wish to consider 50-60 as a reasonable target for any continued upside move from current levels.

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