Earnings Preview Linkedin LNKD

By August 2, 2012Earnings, Trade Ideas

Linkedin Corporation (LNKD) is set to report its highly anticipated results today i.e. Aug 02 after the market close. In the social media/network landscape, Facebook (FB) and Zynga (ZNGA) announced poor results while Yelp (YELP) delivered beyond analysts’ expectations. Linkedin will therefore be watched with great interest. It competes with Monster (MWW) in the recruitment services market, as well as social networking portals like Facebook and Twitter.

Analysts, on average, are expecting earnings of 16 cents per share on revenue of $215.2 million, according to a poll by FactSet. After dismal performance from Facebook (FB), Groupon (GRPN), Linked-in expected to show good results to keep faith in social media (at least short term). Since IPO Linked-in always beat the earnings during the past 4 quarter. So naturally the expectation is to beat again.


This quarter IV rise prior to earnings is in line with previous quarters. Currently index mean IV stands around 80% and post earnings, it might drop by at least 15-20 points.

Linkedin IV Skew

The IV skew between Aug weekly options (expires this week) and Aug Monthly options is about 90%. Based on ATM implied volatility, options are pricing a $10+/- move and based on Aug 1 closing prices, a $95 (nearest ATM) weeklies’ straddle can be sold for $11.30 credit. Based on the past 4 quarters, LNKD has moved a maximum of ~20% (upside) during Feb’12 and -12% (downside) during Nov’11. So a +/-10-15% is a reasonable expectation. However, as we have seen recently, any big miss will trigger a sell-off as stock is currently priced almost at P/E= 600.

(Sign-up for OP Monthly Income Newsletter; generating consistent returns for the past 5 years)


Yesterday LNKD dropped below 50dma but found support at the lower trendline (pls see attached chart). Currently 20dma is 103.6, 50dm is 101.56 and 200 days moving support is 89.29. All time high for LNKD was $122.7 and low was $55.98. Based on the S&R lines that I have marked in the charts it seems 88-110 is the likely scenario. In the extreme highly unlikely scenario (remember CMG), the stock may move to $80 as well (on missing out expectations).

There are various ways to play earnings via numerous Option Trading Strategies. One of the easiest trade is via option straddle or strangle. If you are a buyer, you risk is if stock doesn’t move big (uncertain) and Implied Volatility crash (Certain). If you are a straddle/strangle seller your biggest risk is stock move (uncertain) beyond your breakeven point (recall CMG). If you are fine with the probable range, an Iron Condor strategy could also provide a good solution. If you are an option trader, here are several ways on how you can trade google earnings with a good risk/reward ratio. If your outlook is that stock won’t move, you can also trade earnings via calendars spreads. However if you think stock will sure move, Reverse Iron Condor and/or selling Butterfly could result in nice gains too. Every strategy has its own pros-n-cons choose what you like based on your risk/reward preference.

(Sign-up for OP Monthly Income Newsletter; generating consistent returns for the past 5 years)

If traded well, earnings can provide nice boost to the portfolios with limited risk. Checkout OPN Extra! how earnings can add momentum to your portfolios. CMG recently demonstrated the exceptional gains possiblity that are associated with earning events.

Keep in mind that earnings are always a 50/50 probability event and stocks can move in a much wider range than implied by either option market or forecast by charts.

(Sign-up for OP Monthly Income Newsletter; generating consistent returns for the past 5 years)

Trade carefully, Trade profitably, OP

Was this article helpful to you?
Our free newsletter is full of powerful ideas to help you lead a smarter financial life.

About OptionPundit

Leave a Reply


DISCLAIMER AND NOTICES: None of OptionPundit or any of its officers, directors, employees, other personnel, representatives, agents or independent contractors is, in such capacities, a licensed financial advisor, a registered investment adviser or a registered broker/dealer. Options involve risk and are not suitable for all investors. All investors who deal with options should read and understand the publication "Characteristics and Risks of Standardized Options." A copy of this publication can be obtained by clicking on this link. OptionPundit does not promise, guarantee or imply verbally or in writing that anything taught through our newsletter, in any printed material, or displayed on our website will necessarily result in a profit. OptionPundit is the copyright owner of all text and graphics contained on this website. Copying, publishing or redistributing any material in any way without the written consent of OptionPundit is strictly prohibited.The owners, publishers, and agents of OptionPundit are not liable for any losses or damages, monetary or other that may result from the application of information contained within this website and/or newsletter. Within this website, we publish materials that meet specific criteria representing characteristics associated with described trading strategies. Individual traders must do their own due diligence in analyzing featured options to determine if they represent a suitable opportunity. OptionPundit and any of their agents, affiliates, representatives, employees, principals, business associates or affiliates, partners or independent contractors are not responsible for any losses or profits that may result from the application of information contained within this website and/or newsletter. Past performance is not indicative of future results. Option trading involves substantial risk. You can lose money trading options. The past results posted on this site are meant to give you a reasonable idea of what you could have made or lost trading by following the OptionPundit service but are in no way an exact reflection of what you would have made or lost. Therefore, you should not rely on our past trade results as a perfect replication of what your returns or losses would have been by following our service. There are inherent risks involved in the stock market and these risks should be considered prior to any decision. The representatives of OptionPundit may or may not hold a position in any stocks listed at the time of publication and reserve the right to buy or sell any security, option, future or derivative product without notification. Nothing published by OptionPundit should be considered personalized investment advice. Although the OptionPundit team may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by the OptionPundit team to you should be deemed as personalized investment advice. OptionPundit products are delivered electronically by email and by access to a membership area where trade alerts and special alerts are posted. ©2015 OptionPundit. All rights reserved. Terms of use apply. Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law.