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LinkedIn Option Traders See New Highs on the Horizon

LNKD bulls are buying weekly call options

by 1/28/2013 12:36 PM
Stocks quoted in this article:

Short-term option bulls have honed in on Linkedin Corporation (NYSE:LNKD - 126.16), which touched an all-time peak of $126.83 right out of the gate today. Against this backdrop, the professional networking site has seen about 12,000 call options cross the tape -- nearly four times its average intraday call volume, and about three times the number of LNKD puts traded thus far.

Most popular have been the weekly 130- and 135-strike calls, which have seen around 2,400 and 1,700 contracts change hands, respectively. The bulk of the calls have traded at the ask price, and volume has exceeded current open interest at both strikes, underscoring our suspicions of newly bought bullish bets.

By purchasing the calls to open, the buyers expect LNKD to surmount the respective strikes by Friday's closing bell, when the options expire. More specifically, the volume-weighted average price (VWAP) of the 130-strike calls is $0.65, meaning the buyers will make money if LNKD topples the $130.65 level (strike plus VWAP) by the end of the week. Meanwhile, the VWAP of the 135-strike calls is $0.24, indicating a breakeven level of $135.24. However, even if LNKD doesn't extend its quest for record highs, the buyers' maximum risk is the initial premium paid for the calls.

Taking a step back, we find that today's appetite for bullish bets merely echoes the growing trend seen on the major options exchanges. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio of 2.14 ranks in the 89th percentile of its annual range. Or, in simpler terms, option buyers have picked up LNKD calls over puts at a faster-than-usual clip during the past couple of weeks.

However, that's not to say LNKD's bullish bandwagon is crowded. Although the stock has outperformed the broader S&P 500 Index (SPX) by 11 percentage points during the past three months, 14 out of 29 analysts maintain tepid "hold" ratings. Plus, the average 12-month price target on the shares sits at $136.05, representing expected upside of just 7.2% to LNKD's new high. Should the lingering skeptics capitulate, a wave of upgrades or upward price-target adjustments could help LNKD extend its upward momentum.

At last check, LNKD is up 1.9% to wink at the $126.16 level.


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