While the broader tech sector has floundered, a quiet recovery emerged in LinkedIn Corp (LNKD). Since last quarter’s bone-jarring earnings miss delivered a 50% haircut to the stock overnight, LNKD has spent its days nursing its wounds as the shocking swoon frightened bulls and bears into inaction.
Until now, that is.
With its latest earnings release failing to cripple the stock any further, buyers are finally starting to warm-up to LNKD shares. A pair of higher pivot highs and lows has emerged over the past month creating the first bona fide uptrend in LNKD stock since its fourth quarter. The price ascension is pulling the 20-day moving average higher. Even the 50-day moving average is playing along.
A pair of accumulation days cropped up around earnings, lending further credibility to traders boasting a bullish view. Spectators are now eyeing the top end of LinkedIn’s stock with increasing interest. The $131 zone has thus far kept a lid on the stock, but its strength is waning.
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With LNKD knocking on the door of resistance an attractive breakout trade is presenting itself. The one silver lining about the massive down gap from February is the creation of a large price void leaving little by way of overhead supply.
When prices begin to fill such gaps their levitation higher is often assured. While LinkedIn shares obviously won’t fill the gap any time soon, the price void overhead increases the odds of seeing substantial follow-through should the breakout stick.
Spread ‘Em: LNKD Options Play
LinkedIn options are relatively cheap, making long call spreads a no-brainer buy for traders looking to score on the coming breakout. Buy the July $130/$140 call spread for $3.71. The max loss is limited to the initial $3.71 and will be forfeited if LinkedIn stock remains below $130.
The max gain is limited to the distance between strikes minus the net debit, or $6.29, and will be captured if LNKD ascends above $140 by July expiration. By risking $3.71 to potentially capture $6.29, the spread offers a mouth-watering 193% return on investment.
Consider waiting for LNKD to break the $131 resistance zone before pulling the trigger.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
