Social networking stocks have been a mixed bag this earnings season. They can run hot like Facebook (FB), or they can run quite cold like Twitter (TWTR). Now, with Wall Street’s expectations set high on LinkedIn Corp (LNKD), the LNKD stock price is sure to move.
For the record, LinkedIn per-share earnings are expected to soar 28% year-over-year to 78 cents, with revenue expected to climb 33% to $857.6 million. The fourth-quarter 2015 whisper number for LinkedIn, however, is a brisk 84 cents per share.
Fundamentally, LinkedIn has bested Wall Street’s expectations for the past 13 quarters, giving credence to the bump in the whisper number. But it’s been guidance that sits center stage this earnings season, and LinkedIn will have its work cutout for it come Thursday afternoon.
As far as sentiment goes, the bulls are patrolling the Street in full force. Data from Thomson First Call attributes a whopping 37 buy ratings to LinkedIn’s stock, compared to just six holds and absolutely no sell ratings. What’s more, the 12-month consensus of $280 represents a significant premium of about 38% to Tuesday’s close.
On the options front, LinkedIn stock’s February put-call open interest ratio comes in at a moderately bullish reading of 0.79. However, this ratio rises to a slightly bearish reading of 0.9 in the weekly Feb. 5 series — i.e. those options most affected by Thursday’s quarterly report.
Click to Enlarge Overall, weekly Feb. 5 series implieds are pricing in a potential post-earnings move of about 10.4% from LNKD stock. This places the upper bound at about $221, while the lower bound lies at roughly $180.
A post-earnings rally would challenge short-term resistance at $220, while a decline put pressure on support near $180.
2 Trades for LNKD Stock
Call Spread: From a contrarian view, the heavy bullish sentiment is cause for concern. But LinkedIn has staged a nice rebound, giving it solid backing for a post-earnings rally. If guidance pleases the Street, LinkedIn’s stock should have no problem continuing higher, despite Wednesday’s 6% drop.
As such, traders looking to go long on earnings might want to consider a Feb $210/$220 bull call spread. At last check, this spread was offered at $2.28, or $228 per pair of contracts. Breakeven lies at $212.28, while a maximum profit of $7.72, or $772 per pair of contracts, is possible if LNKD stock closes at or above $220 when February options expire.
Put Sell: On the other hand, if you are worried that LNKD could plateau due to guidance, technical resistance or broad-market pressures, then a weekly Feb. 5 series $165 put sell may be more in line with your expectations.
At last check, this put was bid at $1.73, or $173 per contract. If LNKD closes at or above $165 by the close this Friday, traders entering this position will retain the premium received for opening the position. However, if LNKD trades below $165 ahead of expiration, then traders may be assigned 100 shares of LNKD stock, at a price of $165 per share, for every contract sold.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
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