Early last week we made a defined risk long biased trade playing for a bounce from the 200 level in LNKD. Here was the original trade and rationale:
Trade: LNKD ($200.60) Buy July 200/220/240 call fly for 4.75
-Buy to Open 1 July 200 call for 7.90
-Sell to Open 2 July 220 calls at 1.80 each or 3.60 total
-Buy to Open 1 July 240 call for .45
Rationale: This is essentially a stock alternative long with defined risk. The breakeven is only slightly higher than where the stock is trading and losses are capped at 4.75 if the stock fails at these levels. The next earnings should report in August so this is not an event trade, but rather a sentiment one. The stock is up 3% today and we don’t love chasing up days so we’ll start small here.
Since then the stock has indeed bounced and is spiking higher today on VERY unconfirmed takeover rumors (which we are skeptical of). The stock is now approaching the sweet spot of the trade structure and the trade is now worth $7.75. With the rumor mill the reason for the recent bounce, the stock could become increasingly volatile, in either direction, and we’re going to close the trade here for a decent short term profit as our trade would be a loser with the stock outside our long strikes:
ACTION: LNKD ($218) Sold to close the July 200/220/240 call fly at 7.75 for a $3 profit
The main point here is that we got direction right, but timing wrong, for now. The risk reward of hanging onto the trade in the event that the stock is at or near 220 on July expiration is not exactly favorable, so we will take the quick gain and move on.