Event: LinkedIn (LNKD) reports tonight after the close, the options market is implying about a 8.5%* one day move in either direction which is a bit shy of the 4 qtr avg move of about 9.8%.
*with the stock at $232.50 the Feb 6th weekly $232.50 straddle (the call premium plus the put premium) is offered at about $19.30, if you bought that you would need a move above $251.80, or below $213.20 to just break-even, or about 8.5% in either direction.
Price Action / Technicals: The stock is basically flat on year, flirting with a technical breakout into the print after the stock’s almost 10% rally in the last couple weeks:
[caption id="attachment_50659" align="aligncenter" width="600"]
LNKD 1yr chart from Bloomberg[/caption]
On the downside the gap level from Oct 31st following better than expected Q3 results should serve as meaningful support in the near term.
With the recent turn in investor sentiment, I suspect traders are eyeing the prior all time highs in the mid $250s from mid 2013:
[caption id="attachment_50661" align="aligncenter" width="600"]
LNKD 4yr chart from Bloomberg[/caption]
Valuation: Obviously LNKD trading at 85x expected 2015 eps growth of 41% sticks out a bit, but I think it is important to note that their market cap is just $3 billion above that of TWTR, yet they are supposed to grow sales 34% in 2015 to almost $3 billion, almost $700 million above TWTR’s expected sales. For the sort of growth that LNKD has had, and expected, and the scarcity of its platform, the stock is not off the charts as it relates to its peers. Certainly not my cup of tea from an investment standpoint, but for a trade I could see why valuation wouldn’t be a massive deterrent for near term bulls.
Volatility SnapShot: Short dated options prices have risen to about 50% for 30 day at the money implied vol, very near levels of the last few quarters:
[caption id="attachment_50662" align="aligncenter" width="600"]
LNKD 1yr chart of 30 day at the money implied vol from Bloomberg[/caption]
Given the stock’s high valuation, the recent 10% bounce, the potential for a breakout the 8.5%, the stocks history of volatility post earnings, the one day implied move of about 8% looks pretty reasonable.
Hypothetical Trades: Here are a few trade ideas into the print depending on your directional view:
Bullish: Feb 240/260/280 call fly for 3.35
This structure targets the all time highs with a slightly out of the money fly that reduces premium risk as much as possible.
Or
Neutral: Feb 200/225/250 call fly for 8.40
This is playing for a range bound stock with a decent payout of the stock is around its 50 day moving average following the event.
Or
Bearish: Feb06th Weekly 220/200 put spread for 3.70
This structure looks for a move back to 200 with a defined risk. If you’re looking for the home-run you can probably just buy the 220 puts outright and have room below 200.
We are not trading the name as have no strong view in any direction.