LNKD closed trading at $148.06, down 6.4% with IV30™ up 12.0%. The Symbol Summary is included below.
Provided by Livevol
------------------
UPDATE 4-30-2014
Provided by Livevol
Provided by Livevol
The new range for LNKD stock by the end of trading on May 2nd per the at-the-money (ATM) 155 strike is: [$139.50, $170.50].
This is a pre-earnings note. I note that both in LNKD and TWTR, the option market has woken up from its general malaise and is now pricing substantial risk into earnings. For some recent earnings posts, you can click the titles below:
TWTR - Pre-earnings Note: The Art and Science of Odds Making with Options. Did You Know This? The Pros Do.
AAPL: Earnings Review: How the Option Market Blew It... And We Knew a Week Ahead of Time.
AMZN - Earnings Review: Stock Gaps Off of Earnings; and We Knew it Yesterday.
Let's focus on LNKD, the volatility is compelling and the stock chart is frightening. The Charts Tab (two-years) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).
Provided by Livevol
We can see the huge run up in stock price from ~$90 to over $257 and now back down to $148. The stock drop is symptomatic of the broader momentum stock deflation (NFLX, AMZN, TSLA, YELP, etc). I have written extensively on many of those names, you can scroll to the blog archive on the right side of this page to read those.
But this is a note about risk as reflected by the option market, aka implied volatility. Let's turn to the two-year IV30™ chart in isolation, below.
Provided by Livevol
We can see the hypnotic rise and fall of volatility into and out of earnings -- that's perfectly normal. What I note is that LNKD actually hit an annual high in implied volatility today (that is a two-year chart above). For quite some time when discussing earnings vol in tech names I have been astounded at how low the risk has been per the option market, That's just not the case anymore with LNKD (and TWTR).
I have included the same chart but focused only on earnings dates, below.
Provided by Livevol
If we ignore that crazy volatility eight quarters ago, we can see the vol today is in fact at the highest level for any of the prior six earnings releases. I say, "it's about time." This is not a low risk environment for momentum stocks... actually it's a very risk time, like going down from $260 to $150 in stock price high risk.
Let's turn to the Skew Tab.
Provided by Livevol
I have noted this oddity before, while the skew shape for LNKD is "normal," it's actually abnormal for a company going into earnings that's down this much in stock price. I would have expected a parabolic skew which reflects equal likelihood of tail risk (up and down). That's not what the option market reads.
To read more about skew, what is and why it exists you can click the title below:
Understanding Option Skew -- What it is and Why it Exists.
Finally, the Options Tab is included below.
Provided by Livevol
Here we go: The option market is pricing a stock price range of [$133.50, $166.50] by May 2nd expiration.
- If you believe the stock will be outside that range on expiry or any date before then, then you think the volatility is too low.
- If you believe that range is too wide, and that the stock will definitively be in that range on expiration, then you think volatility is too high.
- If you're not sure, and can make an argument for either case, then you think volatility is priced just about right.
This is trade analysis, not a recommendation.
Follow @OphirGottlieb
Tweet
Legal Stuff:
Options involve risk. Prior to buying or selling an option, an investor must receive a copy of Characteristics and Risks of Standardized Options. Investors need a broker to trade options, and must meet suitability requirements.
The information contained on this site is provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation. Consult the appropriate professional advisor for more complete and current information. I am not engaged in rendering any legal or professional services by placing these general informational materials on this website.
I specifically disclaim any liability, whether based in contract, tort, strict liability or otherwise, for any direct, indirect, incidental, consequential, or special damages arising out of or in any way connected with access to or use of the site, even if I have been advised of the possibility of such damages, including liability in connection with mistakes or omissions in, or delays in transmission of, information to or from the user, interruptions in telecommunications connections to the site or viruses.
I make no representations or warranties about the accuracy or completeness of the information contained on this website. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that I endorse, sponsor, promote or am affiliated with the owners of or participants in those sites, or endorse any information contained on those sites, unless expressly stated.
Great work. When I see a company battered down like this, this usually becomes a buying an opportunit around earnings.
ReplyDeleteYes, can momomentum drop even further? Sure. I noticed the RSI on the hourly for LNKD was 14 earler today. That's egregiously oversold. But, I know we can stay oversold. Bears are looking for more of a fall. And, with FB providing solid numbers and still falling, the high P/E can naturally be the next victim. But, something smells of a major move up from here. What's your take?