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LinkedIn Corporation (LinkedIn) is a professional network on the Internet with more than 90 million members in over 200 countries and territories. Through the Company’s platform, members are able to create, manage and share their professional identity online, build and engage with their professional network, access shared knowledge and insights, and find business opportunities.
This is a vol note, specifically low vol in a stock that has had a recent history of large moves. I found LNKD using a real-time custom scan that hunts for low vols.
Custom Scan Details
Stock Price GTE $10
IV30™ GTE 30
IV30™ Percentile LTE 10
IV30™ - HV180™ LTE -7
Average Option Volume GTE 1,200
The goal with this scan is to identify short-term implied vol (IV30™) that is depressed to the long-term stock movement (HV180™) was well as its own history. I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume) and minimum level of vol so the examination is more interesting.
The LNKD Charts Tab is included (below). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).
On the stock side we can see the nice return over the last six months, when LNKD closed at $85.10. More recently, I've highlighted the move into and then out of earnings on 8-2-2012 AMC.
First, for the three days prior to earnings, the stock fell from $104.18 (7-30-2012) to $93.51, or just over 10% in three trading days. Then, after the earnings announcement, the stock popped $15 or 16%. Here's a news snippet from that result:
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What: Shares of business-focused social network LinkedIn (Nasdaq: LNKD) were getting a big raise today, gaining as much as 16% in intraday trading after the company reported second-quarter results.
So what: Revenue for the quarter ended in June was up a scorching 89%, to $228 million, even as profit fell sharply from $4.5 million last year to $2.8 million. On an adjusted basis, the company earned $0.16 per share during the quarter, which met analysts' estimates. Revenue was well above the $216 million Wall Street was looking for.
While the company is obviously attracting a lot more business, it's paying the price right now, as its bottom line reveals. LinkedIn has been hiring heavily and increasing marketing spend, which is tough on short-term profits, but hopefully going toward building a strong company for the long term.
Source: The Motley Fool via Yahoo! Finance; Why LinkedIn's Shares Popped, written by Matt Koppenheffer.
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Moving to the vol, we can see how elevated the implied got into earnings, reaching over 90% in the IV30™ and over 265% in the Aug03 weekly options. Even that elevated vol only reflected a $12 move in a one-day move off of earnings, which in hindsight was still too low.
Following earnings, the implied collapsed (which is normal and expected), and since then has found a quiet equilibrium at ~42%. I note that the 52 wk range in IV30™ is [41.12%, 93.56%], putting the current level in the 2nd percentile (annual). In English, the implied is now trading right on an annual low, which is in fact an all-time low. So, I guess the question is, "Should LNKD risk right now be lower than it's ever been since it went IPO?"
Let's turn to the Skew Tab to examine the line-by-line and month-to-month vols.
We can see a normal skew shape, quite pretty, really. No single strike or expiry shows any obvious discrepancies or kinks. You can read more about skew here:
Understanding Option Skew -- What it is and Why it Exists .
Finally, let's look to the Options Tab (below).
We can see that the monthly vols are priced to 42.43%, 42.52% and 50.51%, respectively for Aug, Sep and Nov. The next earnings release is likely in early Nov which explains the elevated vol. Ultimately this is a compelling stock due to it's depressed implied. It's hard to imagine guessing that vol would be at an all-time low after such a volatile move into and then out of earnings while we approach the Fall. But we don't have to imagine it -- it's real...
Possible Trades to Analyze
This is trade analysis, not a recommendation.
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