5/20/2014 11:11:45 PM
As confirmed in the daily chart below, LinkedIn Corporation stock (LNKD) started a correction at the beginning of March and the price kept dropping until the start of April. In the last 2 weeks of April the price recovered, then the stock crashed at the beginning of May after LinkedIn's earning's announcement. As highlighted in the chart, LinkedIn stock appears to have bottomed out at a support level the past few weeks. Also, as noted in the chart technical trends are neutral and momentum indicators are turning bullish.
Whenever you are evaluating one of the stocks on your watch list that has been in free-fall you need solid confirmation the crash has ended. As discussed above, the daily chart signals LinkedIn Corporation stock price has stabilized. If we analyze further by looking at the longer term weekly chart below, we note the price has held above firm support the past few weeks and the strength indicator is oversold and due for a bounce.
This is opportunity to profit from executing a LinkedIn Corporation, Inc. (LNKD) weekly income trade. We are utilizing a bull put spread because the stock just needs to stay above the price of the sold option another 10 days for this strategy to work.
LNKD Weekly Trade Setup
We are opening an end-of-May expiration LinkedIn Corporation, Inc. (LNKD) bull put spread. The LNKD put spread needs to generate a minimum .45 net credit AND we prefer an 80% probability that the short put contracts will expire worthless and we get to keep most of the sold premium. The spread in the table below complies with our trading rules for initiating a ten-day option expiration LNKD bull put spread (based on Tuesday's closing bid/ask mean). The suggestion is to submit a limit order to purchase/sell the option strike prices below. Please confirm the correct option symbols with your broker.
Premium Credit $.53
Total Option Premium Received $530 (Excludes commissions and fees)
Maximum Risk $4,470
Margin Requirement $5,000
10 contracts traded on each leg (number of contracts can be increased or decreased based on risk tolerance and/or funds available to trade; this will impact Total Premium Received, Maximum Risk amount, and Margin Required)
If prices gap up the put spread may not be available as published and unless the gap is filled we will hold off on the trade. Conversely if prices drop sharply then we will play is safe and hold off on the trade.
The strategy is to let all the option contracts expire worthless. However if our short strike is violated (price below the short strike) we will look to close out this spread (buy the short contracts, sell the long). Try not to overreact and rush to close the trade, many times the market will reverse itself and remove the sense of urgency. If our short strike has been violated and there is no price reversal, we cut our losses and live to fight another day.
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