LNKD Earnings Play

10/29/13

LNKD earnings come today right after market close, so we are looking to setup an earnings play.

What can we see on the option chain?

1. The expected MMM on earnings is +/-22.41.
2. Since the MMM is already factored into the option premiums, the shorter expiring options are affected the most. The NOV1 weeklys, which expire in 3 days, have the highest IV (by far!).
3. After earnings the option IV will revert to the 'normal' of around 50%.
4. The NOV1 options should experience a vol crush of around 75 points.
5. The expected move by the NOV1 expiration is +/-24.16.

Since we don't have a directional bias, we'll structure a trade outside of the expected movement.

We want to stay outside the 84% OTM probability which is 1 SD. This places our short strikes at 215 and 280. That gives us a 32 point cushion on the downside and 28 points on the upside, well outside the expected move.

• STO Nov1 275 C (83.6% OTM)
• BTO Nov1 280 C
• STO Nov1 215 P (87% OTM)
• BTO Nov1 210 P
• Credit = 1.38
• ROR = 138 / 362 = 38%

If LNKD doesn't move at all after earnings, we could stay in until expiration. Usually, we should look to get out early anytime our position is 25-50% profitable. But in this case there will only be 2 days remaining until expiration.

If LNKD does move as expected, one side of our iron condor will be threatened while the other will be practically worthless. We should then look to buy back the cheap short position for .05 or less (which avoids commission fees), and close out the threatened spread for at least a 25% profit.

Update: 10/30/13

LNKD reported earnings of $0.39 beating the estimate of $0.009. The stock dropped -19 and then immediately gained 24.75, but ended up only being down -5.55 at open. It then slowly trended down throughout the day to close at 224.11, -23.05. The IV for the NOV1 options dropped from 127% to 55%, a 72 point drop in 1 day.

Update: 10/31/13

BTC the short 275 C for .05

BTC the Put spread for .51

Net = 138 - 56 = $82

ROR = 82 / 362 = 22% in 2 days

At this point we are still long the 280 Call, just in case NFLX skyrockets by Friday...