LNKD Analysis

Update 7/30/2015: The premium fell, sending the risk/reward ratio up to 2.8:1, an overly high level by my standards. I've declined to take the trade., 

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The work-oriented social networking company LinkedIn Corp. (LNKD), headquartered in Mountain View, California, publishes earnings on Thursday after the closing bell.

[LNKD in Wikipedia]

LNDK

I shall use the AUG1 weekly series of options, which trades for the last time eight days hence, on Aug. 7.

Ranges

Click on chart to enlarge.

LNKD after the July 29 close, 30 days hourly bars

Implied volatility stands at 57.9%, which is 4.6 times the VIX, a measure of volatility of the S&P 500 index. LNKD’s volatility stands in the 87th percentile of its most recent rise.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart	Earns
Upper	251.88	271.75	233.18	263.76
Lower	212.12	192.25	202.75	180.24
Gain/loss	8.6%	17.1%

Implied volatility 1 and 2 standard deviations; chart support and resistance, maximum earns move
The Trade

Iron condor, short the $265 calls and long the $270 calls,
short the $195 puts and long the $190 puts,
sold for a credit and expiring Aug. 8.
Probability of expiring out-of-the-money

AUG1	Strike	OTM
Upper	265	83.8%
Lower	195	83.7%

The premium is $1.57, which is 31% of the width of the position’s wings.The stock at the time of analysis was priced at $232.

The risk/reward ratio is 2.2:1.

The zone of profit in the proposed trade covers a $35 move either way. The biggest immediate move after each of the past four earnings announcements was $51.78 and the average was $31.12.

Decision for My Account

I intend to open a position in LNKD as reported above. I'm posting this analyze before the market open, and shall up it if events force change in my plans.

-- Tim Bovee, Fukuoka, Japan, July 30, 2015

References

My volatility trading rules can be read here.


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Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License



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Based on a work at www.timbovee.com.