Wednesday, November 2, 2011

LinkedIn (LNKD) - Earnings Vol and Preview

LNKD is trading $85.29, down 4.1% with IV30™ up 4.2%. The LIVEVOL® Pro Summary is below.


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LinkedIn Corporation (LinkedIn) is a professional network on the Internet with more than 90 million members in over 200 countries and territories.

This is a quick note on earnings on a company which doesn't have a lot of history to compare to. Just some elevated vol that may be worth examining on a company that basically feels like -- nobody knows what it's really worth or what to expect from the earnings release.

Let's start simple, the Skew Tab.

The three front months are priced as would be expected relative to each other with monotonic vol increases to the front. There aren't any kinks in the skew and the shape in and of itself is normal. Let's turn to the Charts Tab (6 months). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

I've highlighted two sections. First, on the stock portion, we can see the large stock drop off of the last earnings report (sort of), what I believe was the first and only report for the company since it went public. The numbers were released on 8-4-2011 AMC and were very impressive relative to expectations, but the stock dropped ~$4 on 8-5-2011. It was on 8-8-2011 that the stock really fell -- the day the market was down huge. LNKD fell from $91.36 to $75.47. All told, in the two days after earnings the equity dropped from $95.52 to $75.47 or 21%, though it wasn't really earnings related.

On the vol side, we can see how the implied has risen nicely into the earnings report due out tomorrow AMC. Alright, so what? Let's look to the Options Tab.

Possible Trades to Analyze
Checkin' out the vol in the front month a few interesting phenomena pop out. First, check out the ATM (85/87.5) strangle -- it's worth ~$13.50.

Hypothetically an 85/87.5 strangle sale covered with an 80/92.5 strangle purchase could collect $4.20 and risk $0.80. Then again, the stock moved down $4 on an impressive report last quarter and then decided it was time to move 20% just ya know, because. Here are some more interesting notes about a company that, when you really look at the earnings vol and the wings, the market has no frickin' idea what this company might report.

1. The Nov 37.5 puts are $0.05 bid.
2. The Nov 135 calls are $0.05 bid.
3. You have to go as low as the 57.5/55 put spread to find a 9:1 (MaxGain = 10x debit) MaxGain:MaxLoss spread.
4. You have to go as high as the 115/120 call spread to find a 9:1 (MaxGain = 10x debit) MaxGain:MaxLoss spread.

IMHO, the market has no idea what this thing is worth -- earnings report or not. Let's wait until tomorrow to see where the stock closes and if the vol continues to rise into the report. Maybe that iron condor gets to over $4.50 bid?

This is trade analysis, not a recommendation.

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