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Bears Pile On to LinkedIn Corp (LNKD) Despite Positive Price Action

Weekly puts resonate with LNKD speculators

by 3/22/2013 2:42 PM
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LinkedIn Corp (NYSE:LNKD - 181.85) has cruised about 4% higher today, after RBC started coverage of the stock with a "sector perform" rating and a price target of $190. However, this hasn't kept bearish bettors at bay. Roughly 17,000 puts have been exchanged so far, which is almost double the equity's expected intraday volume. It looks as though a handful of these speculators are expecting the shares to decline over the course of the next several days.

More specifically, the weekly 3/28 180-strike put has seen 2,523 contracts cross the tape at a volume-weighted average price (VWAP) of $2.94. A healthy portion of these puts traded at the ask price, suggesting they were bought. Because today's volume has topped current open interest levels -- coupled with the fact that implied volatility was last seen 6.9 percentage points higher -- it's likely that new positions are being established here.

In order for speculators to secure a profit from these bought-to-open puts, LNKD must fall below $177.06 (strike price minus the VWAP) by next Thursday's close, which is when these weekly options expire. This is a 2.6% decrease from the stock's present perch. Meanwhile, the delta for these options sits at negative 0.39 -- a considerable difference from yesterday's delta of negative 0.75 -- meaning they have a 39% chance of moving into the money ahead of expiration.

This uptick in near-term put activity is no major surprise, as the Schaeffer's put/call open interest ratio (SOIR) for LinkedIn checks in at 1.02. In other words, puts slightly outstrip calls among options due to expire within the next three months. This ratio ranks in the 62nd percentile of its annual range, reflecting a healthier-than-usual appetite for short-term puts over calls lately. From a contrarian perspective, this abundance of open interest -- particularly in the April series of puts -- could translate into options-related resistance down the road.

Meanwhile, sentiment among the brokerage bunch remains pessimistically skewed toward the professional networking site. The security currently maintains 14 tepid "holds," compared to 11 "strong buys." Even more telling, LNKD's average 12-month price target reflects a discount to the stock's current price. This leaves the door wide open for future upgrades and/or price-target hikes, which help guide the shares higher.

The skepticism levied against LinkedIn Corp seems unwarranted, given the stock's year-to-date gain of more than 58%, as well as its year-over-year advance of close to 81%. What's more, the equity has recovered about 92% since tagging a November low of $94.75.


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