Game the Breakout in LinkedIn (LNKD) Stock

LinkedIn Corp (LNKD) is rockin’ today on the heels of an upgrade by Barclays. The social networking stock’s rating was hiked to “overweight” from “equal weight,” and the price target on LNKD stock also was lifted from $225 to $250.

Not surprisingly, the positive news is boosting LNKD shares, which have climbed 3.5% so far in early trading.

Since disappointing Wall Street during May’s earnings release and experiencing a harrowing down-gap, LNKD stock has been otherwise stuck in the mud. Positive catalysts have been few and far between, so this morning’s upgrade was welcome news to shareholders tiring of LinkedIn’s dithering.

Over the past week, LinkedIn’s technical posture has improved notably. It now sits well above its 20- and 50-day moving averages, and with a higher pivot low and higher pivot high in place, LNKD has returned to an uptrend.

Today’s rally is vaulting LNKD above a pivotal resistance level, making it a breakout worthy of exploitation. Further buttressing the case for a bullish play here is the massive unfilled gap created by the aforementioned earnings drop from May.

LinkedIn stock chart
Click to Enlarge
Source: OptionsAnalytix

A gap in prices leaves little by way of overhead resistance, making it that much easier for prices to rise unimpeded.

LNKD Trade Idea

On the implied volatility front, LNKD stock options are richly priced these days. The IV rank stands at 63%, making short option plays an attractive proposition.

If you’re looking for a high-probability avenue for capitalizing on Linked’s breakout today sell the Aug $190/$185 put spread for 55 cents. Consider it a bet that LNKD shares remain above $190 for the next month.

The reward is limited to the initial 55-cent credit and will be pocketed if the puts end up expiring out of the money.

The risk is limited to the distance between strikes minus the net credit, or $4.45, and will be lost if LNKD stock falls beneath $185.

As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.

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