New Trades: LinkedIn? Might as Well Be Dead. (LNKD) Bonus, Get Your Groupon Shorton. (GRPN)

by Dan December 16, 2011 3:29 pm • Commentary

Below is the LNKD trade I will be discussing on Options Action tonight. Below that trade is a bonus trade in GRPN.

On  a day that ZNGA priced its $1 billion IPO at $10 and almost immediately broke price, I think it makes sense to look at other overvalued piece of crap recent net IPOs.  LNKD has performed very well since its may IPO and is up 44%, but also down about 44% from its high print on its opening day of trading……While I think these new IPOs will all someday be single digit stocks, I wouldn’t short the stocks outright as that is the quickest way to go broke… fast.  They have high short interest and any real news can send them up in a quick.  But sticking to my playbook I want to define my risk and identify levels where I think stocks can go in the wrong market with the wrong news flow.

Here’s the trade:

LNKD ($65.40) Bought Feb 55 / 45 Put Spread for 2.00
-Buy 1 Feb 55 Put for 3.50

-Sell 1 Feb 45 Put at 1.50

Break-Even On Feb Exp:
Profits btwn 53 and 45 make up to 8.00, max gain of 8.00, 45 or lower
Losses btwn 53 and 55 lose up to 2.00 and max loss of 2.00, 55 or higher.

I chose the $45 strike as my short strike because that is the IPO price and would expect some support there, but I do believe the next real test might take it back to unchanged and any hiccups on their next quarterly call, (that should come by Feb expiration) could be the exact catalyst.

I have absolutely no smoking gun here and this put spread is a good bit out of the money so this is not a particularly high conviction idea, but I like to spread my chips around a bit and be a bit contrarian.  This trade is not for everyone and I am risking what I would be fine losing as I like the exposure to a meltdown in speculative names.


And here’s the bonus trade:

GRPN ($22.43) Bought July 10 /5 1×2 Put Spread for .70

Bought 1 July 10 Put for 1.44

Sold 2 July 5 Puts at .37 each

Break-Even on July Expiration:

Profits btwn 9.30 and .70 make up to 4.30 with max gain at 5.00 of 4.30

Losses of up to .70 btwn 10 and 9.30 and then again btwn Zero and .70, with max loss of .70 above 10.00

This is a really speculative trade and not a bad one to stay on the sidelines and observe how it plays out. This trade is not for everyone.