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Option Brief: LinkedIn Corp (NYSE:LNKD) continues to power up the charts, up 110% in 2013 alone to sit at $242.15. One options strategist opted for a three-legged spread on Wednesday to wager on continued gains in the shares of the web-based company. Specifically, he targeted the February series of options, selling puts and buying a long call spread to collect a net credit. Open interest at the strikes in question rose overnight, confirming the positions traded on the opening side.
Breaking it down, the trader sold 750 of the February 2014 185-strike puts for $7.30 each, while simultaneously buying the February 2014 270/300-strike long call spread for a net debit of $7.05. All told, the trader collected a total credit of $0.25 for each three-legged spread opened.
This net credit is the maximum profit for the trade if LNKD is perched between the 185 and 270 strikes at expiration in roughly four months. Beyond the $270 mark, profits appreciate until the $300 level, where they max out at $30.25 (the difference in call strikes, plus the initial premium collected). On the downside, however, losses are unlimited down to zero, due to the short uncovered put.
Meanwhile, off the charts, LinkedIn Corp (NYSE:LNKD) continues to tweak its product, recently rolling out three new mobile apps. The company is also expected in the earnings confessional next Tuesday, Oct. 29, after the closing bell, and expectations may be running high into this news. In the last eight quarters, LNKD has topped earnings expectations seven times, by an average of 10 cents per share (in the eighth quarter, the company matched estimates). What's more, the stock has jumped an average of 6.8% in the day after its earnings results. With earnings on the horizon, Schaeffer's Volatility Index (SVI) of 66% is sitting in the 85th annual percentile, suggesting short-term options are relatively pricey, from a volatility perspective.