LinkedIn Corp (NYSE:LNKD) is scheduled to release its quarterly financial results after the market close on Thursday, July 31. Analysts at J.P. Morgan noted that the company’s implied volatility is elevated, and recommended an options trade idea prior to its earnings.
LinkedIn options trade idea
J.P Morgan analysts Arjun Mehra, Marko Kolanovic and Bram Kaplan also noted that the shares of LinkedIn Corp (NYSE:LNKD) declined ~18% YTD, and still need to return to its trading level prior to the selloff of momentum stocks earlier this year.
According to them, aside from their observation that the implied volatility of LinkedIn Corp (NYSE:LNKD) is elevated going into its earnings, the stock is currently trading at its highest quartile measured over the last year.
Mehra and his fellow analysts emphasized that “buying outright calls to position for upside is expensive” as a result of the current situation of shares of LinkedIn Corp (NYSE:LNKD).
The analysts specifically recommended for investors to “initiate an August 165/190 risk reversal (sell Aug 165 puts, buy Aug 190 calls) for 45c indicative upfront premium (ref 178.00).”
Mehra and his colleagues also explained, “1M 90-110 skew is expensive and trading close to its 70th percentile measured over the last year, which makes this trade attractive, in our view.
In addition, the analysts pointed out that the options market is currently implying a ~7.5% move for the shares of LinkedIn Corp (NYSE:LNKD) on earnings. They think it is cheap compared with the ~10.5% move the stock has achieved over the last eight-quarters.
Mehra and his colleagues explained that investors would break even on their recommended trade if the shares of LinkedIn Corp (NYSE:LNKD) would increase by at least the current implied move.
On the other hand, the analysts said, “If the stock drops on earnings below the short put struck at $165, investors should feel comfortable collecting stock at these lower levels.”
Second-quarter expectations
Separately, J.P. Morgan analyst Doug Anmuth believed that LinkedIn Corp (NYSE:LNKD) is well-positioned going into the second-half of this year due to its stabilizing talent growth, increasing sponsored content traction and the upcoming re-launch of sales navigator.
Anmuth expected LinkedIn Corp (NYSE:LNKD) to deliver solid financial results for the second quarter. He projected that the company’s second-quarter revenue and EBITDA will beat the consensus estimates of Wall Street analysts, and above its high-end guidance.
