LinkedIn Corp: Go Bearish Ahead of the Mauling in LNKD Stock

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Between LinkedIn Corp’s (LNKD) weak earnings, analyst downgrades and investor backlash, LNKD is prime for a bearish position.

LinkedIn Corp: Go Bearish Ahead of the Mauling in LNKD Stock

With the technical picture of LinkedIn confirming its bearish profile, it’s time for an options play to take advantage of LNKD’s imminent mauling.

A month ago LinkedIn announced quarterly results, slashing first quarter and fiscal year 2016 profit guidance below Street estimates, foreboding a weakening trend in unique visitor traffic and page views.

The report didn’t fall on deaf ears: Shares of LNKD fell nearly 45% in the immediate aftermath, prompting a wave of downgrades.

In a nutshell, LinkedIn’s prior strong investor support, minimal short interest and overly optimistic growth assumptions prompted investors to reassess their forecasts for a high-multiple growth name in for a slowdown.

Fast forward a few weeks and shares of LNKD are technically in position and readying for a lower fair value and less expensive multiple.

LNKD Stock Weekly Chart

022916-lnkd-weekly-stock-chart
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Source: Charts by TradingView

After failing to establish a higher high late in 2015, shares of the social network plummeted through angular and lateral support lines following its poorly received earnings report.

More recently, in diffusing its massive short-term oversold condition on record volume, LNKD has put together a bearish flag pattern of about a month in length.

The countertrend pattern in LNKD appears to be losing momentum: Shares are trading firmly below resistance, offering bearish traders an entry point with reduced risk.

As the flag has formed around the 78% retracement level, the next logical move is a test of the pattern low of $98.25, and from there, maybe an eventual test of its all-time-low near $56.

LNKD Stock Options

Given the discussed technical setup, which anticipates decent downside pressure going forward, the May $100 put is priced well for bearish investors wanting to short LNKD with limited risk.

With shares near $117.25, the LNKD put trades for about $5.15, and on an expiration basis, this results in a breakeven of $94.85 and drop of 19% in LinkedIn stock to get there.

The pricing might appear a bit rich to pay on the surface, but given LNKD’s recent low of $98.25, nearly three months of position play and less than 5% stock risk per contract, the put looks quite reasonable in lieu of shorting shares.

Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.

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The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2016/03/lnkd-linkedin-stock-options/.

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