LinkedIn Earnings Trade Idea

• Posted by Greg Harmon
• on May 2nd, 2013

So you missed the run in LinkedIn, $LNKD, and are jealous of all your friends talking about owning what the cool Hedge Funds own. You can pout or notice that earnings tonight may give you a chance to get in cheaper with little cash out lay. The stock looks strong from the chart below. The Relative Strength Index (RSI) is bullish and it has a Moving Average Convergence Divergence (MACD) that is rising. Fresh out of the consolidation through March and April it has a Measured Move higher to 225. But earnings can create gaps and big moves in stocks. The options market is pricing in an $18 move for tomorrow. Nearly 10%. This is a bit more than the historical move of just under 9% but not far off.

LinkedIn, $LNKD

Trade Idea: Buy the May10 Expiry 190/180 1×2 Put Spread for free.
Playing for a pullback this trade will put you the stock on a close under 180 Next Friday but at a basis of 170, the bottom of the previous consolidation range. It is buying the 190 Put and selling 2 of the 180 Put. Size this for the position size you want to buy, so if you want 200 shares trade 2 of the 190 Put and 4 of the 180 Put. If it goes up, you have lost nothing. If it stops at 180, the expected move if it goes lower and near the top of that previous range, you make $10 and can buy the stock cheaper.

Trade Idea: Buy a May10 Expiry 210/220/230 Call Butterfly. Want to add upside as well? This is buying 1 each of the May10 Expiry 210 and 230 Calls and selling 2 of the 220 Calls. It should cost about $200 per butterfly and pays off $1000 at 220 next Friday, again between the expected move and the Measured Move if it goes up.

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