So you�ve bought a stock and made money on it. That�s great news! But � what do you do next?
In other words, is it time to sell your shares and take the profits � or hold out for more that might or might not come? That is the dilemma facing shareholders of one company. They proved they would sell it once, but will they do it again?
That stock is LinkedIn Corp. (NYSE:LNKD) and history is looking like it�s about to repeat itself. That�s because it just recently had its locked-up period end, which means investors and current and former employees can start selling their shares.
The stock originally IPO�d for $45.� After the period ended a couple of weeks ago, the stock dropped over 20% and the slide continued into this past week.
The stock rallied toward the end of the week and worked its way up almost to $70, which was a former support level that has now become resistance. The thought is maybe some investors missed their chance to sell and this time they will take it.
If LNKD cannot get past the new resistance level, it might be ripe to retest the low it just made this past week at around $56. This trade idea is counting on a quick move down, so with about two weeks left until December expiration, that should give us enough time to capture a fast move.
With LNKD trading here at $68.79, you can buy the LNKD Dec 67.50 Puts for $3.70 or less.
It would be nice to see LNKD trade below Friday�s low, which was $66.76, to confirm the bearish reversal before taking a position. Consider exiting the position if LNKD trades much above $70 or if the stock consolidates for a few days.
The long put strategy is pretty straightforward. The trade profits when the stock falls and the put premium increases as the LNKD option moves farther and farther in-the-money (ITM). Maximum profit is almost unlimited only because LNKD can only fall to $0 (which is highly unlikely) and the maximum loss is $3.70 (what you spend to initiate the trade) if LNKD finishes at or above $67.50 at December expiration.
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