Thursday, July 31, 2014

* LinkedIn (LNKD) - Earnings Preview: Why the Stock May Move Big; And Why It Might Not

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LNKD is trading $181.54, down 3.1% with IV30™ up 1.0%. The Symbol Summary and everything else is included below.

Provided by Livevol

Update 8-1-2014 (one-day later)

Provided by Livevol

LNKD Stock has moved more than the option market priced.  Even in a rather strong downwind, the upside move was more abrupt than reflected by the options.

Earnings Highlights
Revenue: $533.9M (up 46.8%) vs $512M consensus
'Adjusted' Net Profit: $0.04 EPS vs. $0.00 consensus

Details: ZACKS via Yahoo! Finance LinkedIn (LNKD) Beats Q2 Earnings; Ups FY14 Revenue Outlook

The option market reflects a price range of [$168.50, $196.50] after earnings today and there are equally arguments as to whether or not that range is too wide or too narrow.

Pardon the brevity of the post, but it's almost earnings time.

The implied volatility is the forward looking risk in the equity price as reflected by the option market (IV30™ looks forward exactly 30 calendar days). In English, the red curve (above) is the risk in future stock price movement.

We can see that LNKD implied volatility (risk into earnings) is the second lowest it has been in the last two-years (see the yellow circles -- today is the second lowest).

Let's turn to the 2-year Stock Chart:

Provided by Charles Schwab optionsXpress

We can see that LNKD follows very long trends of stock movement in one direction.  It's much less "flip-floppy" than some of the other MOMO names (see TSLA for example).  That lack of whip-saw stock movement does make a reasonable circumstantial argument for implied volatility (risk into earnings) to be lower now than it has been in the prior quarters of earnings releases.

So there's an argument against a big stock move.

Having said that... and please don't trade on this opinion, I am not trading on this opinion at all... The option market reflects a price range of [$168.50, $196.50] after earnings today and I think LNKD may be set to move more than the option market is pricing.

Perhaps not the single day move, but the move out to Aug15th (monthly expiration) which shows a price range of [$164.50, $200.50] may be vulnerable.

  • 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.

Why do I think the move could be greater?... Simply because the market is very volatile right now and hyper focused on social media in particular (FB, TWTR, YELP) and MOMO in general.

The momentum collapse (Collapsing Momentum in 3-Charts; Why Today Was Predictable; Why The Bull May Not be Dead) is incredible.

But, since that rationale is based on "everything other than the stock itself", I am not compelled to trade this one.

This is trade analysis, not a recommendation.

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