There are so many social networking sites out there that it is hard to keep track of them all. In a way, that’s kind of like stock charts — there are so many, traders can lose track of potential opportunities.
Here is a trade idea that you shouldn’t let slip off your radar:
LinkedIn (LNKD — $199.96): Call Credit Spread
The trade: Sell the July 210/215 Call Credit Spread (selling the July 210 call and buying the July 215 call) for 70 cents or better.
The strategy: The maximum potential profit for this trade is 70 cents if LNKD is trading below $210 at July 26 expiration; both call options would expire worthless. The maximum loss is $4.30 ($5 – $0.70) if LNKD is trading above $215 at July expiration. Breakeven is $210.70 at expiration based on a cost of 70 cents.
The rationale: LinkedIn, like many other stocks, has been surging higher in this relatively bullish market. The company is expected to announce earnings on Aug. 2, and if it is anything like last earnings — LNKD fell from more than $200 to below $176 in one day — the stock might take another dive. This trade idea expires ahead of earnings, so a knee-jerk move will not be a factor, but it could put some doubt in traders’ minds about if they want to own the stock before the announcement.
Click to Enlarge Looking at the chart, LinkedIn stock is approaching its all-time high just below $203. This pivot area could provide resistance and prevent the stock from moving higher.
But first things first: LNKD still has to clear and confidently close above what could also be considered a resistance area, which is the $200 level.
With two weeks to go until expiration, LNKD needs to pull back and take a breather from this extended run — and make this credit spread worth your while.
As of this writing, John Kmiecik did not hold a position in any of the aforementioned securities.