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Short-Term Bears Circle LinkedIn Corp (LNKD)

Speculators established new positions at LNKD's weekly 245-strike put

by 9/6/2013 10:55 AM
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Professional networking site LinkedIn Corp (NYSE:LNKD) tagged a record high of $249.98 on Thursday, despite announcing a larger-than-expected $1.2 billion stock sale. Against this backdrop, option traders picked up LNKD puts to either gamble on a short-term retreat, or to lock in gains ahead of the weekend.

By the closing bell, LNKD had seen roughly 38,000 calls and 40,000 puts change hands -- more than double the norm. Furthermore, the stock's 30-day, at-the-money implied volatility (IV) crept 2.1% higher to 36.2%, pointing to escalating demand for LNKD options.

Digging deeper, traders established new positions at the weekly 9/6 245-strike put, which saw open interest rise by about 1,250 contracts -- the most of any strike. Plus, the majority of the puts traded on the ask side, suggesting they were purchased.

By buying the out-of-the-money puts at a volume-weighted average price (VWAP) of $1.56, the traders have one of two motives: to profit from a breach of $243.44 (strike price minus VWAP) by the closing bell today -- when the options expire -- or to "insure" a long stock position. In the case of the latter, the puts lock in an acceptable price at which to sell the shares ($245, in this case), should LNKD take a turn for the worse before the weekend.

After touching a new all-time high of $250.59 right out of the gate, LinkedIn Corp (NYSE:LNKD) has pared its gains amid broad-market weakness, and is currently up 0.8% at $250.12.

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