It’s social media week on Wall Street, and so far … so bad. Twitter (TWTR) launched a poorly received second-quarter report last night, though Facebook (FB) will try to turn things around when its earnings come in after the close today.
But we’re going to look ahead to the business end of social networking — LinkedIn (LNKD) will step into the limelight after the close of trading Thursday night, and considering mixed Wall Street expectations, we’ve got a couple of trade ideas in mind.
Digging into the numbers, LinkedIn earnings are expected to plunge more than 40% from year-ago levels to 30 cents per share in the second quarter. Revenue, on the other hand, is seen rising roughly 27% to $679.96 million. That said, LinkedIn reported first-quarter numbers that were more or less in line with expectations, but LNKD stock plunged 19% the following day due to poor guidance.
Sentiment is once again rather bullish heading into tomorrow’s report. EarningsWhisper.com reports a Q2 whisper number of 36 cents per share, while data from Thomson/First Call indicates that 32 of the 40 analysts following LNKD stock rate the shares a “buy” or better.
Still, there is some wiggle room for additional bullish sentiment, as the 12-month consensus price target of $250 represents a meager premium of about 9% to yesterday’s closer.
Turning to LNKD’s options activity, the July/August put/call open interest ratio rests at a bearish reading of 0.95, with puts and calls nearly in parity with each other. Zeroing in on the soon-to-expire weekly July 31 series, this ratio dips only slightly to 0.86, indicating an elevated degree of pessimism from options traders ahead of LinkedIn earnings.
Click to Enlarge Overall, weekly July 31 series implieds are pricing in a potential post-earnings move of about 11% from LNKD stock. This places the upper bound at $252.41, while the lower bound lies at $202.59.
An earnings-induced rally could push the stock back above support/resistance at the $250 level, while a selloff could see the shares testing support near the psychologically significant $200 mark.
2 Trades for LNKD Stock
Straddle: Looking at LinkedIn’s options data reveals that implieds are elevated when compared to historical data. While this makes LNKD’s options a bit pricey, both the upper and lower bounds are above key technical levels.
In other words, a breach of either of these levels has the potential to spark a much larger move in the shares.
One way to take advantage of this volatile situation is to open up a straddle. A straddle involves the simultaneous purchase of an at-the-money call and an at-the-money put, and allows the trader to take advantage of a large move in the underlying stock regardless of the direction.
At last check, the LNKD Aug $227.50 straddle was offered at $27.83, or $2,783 per pair of contracts. Breakeven for this trade lies at $255.33 on the upside and at $199.67 on the downside.
Call Spread: For those looking to follow the bulls in the brokerage community, an Aug $230/$250 bull call spread has plenty of potential. At last check, this spread was offered at $7.71, or $771 per pair of contracts. Breakeven lies at $235.21, while a maximum profit of $12.29, or $1,229 per pair of contracts, is possible if LNKD stock closes at or above $250 when August options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
