LinkedIn (LNKD) reported earnings on Thursday after market. The report, from a very general perspective, is perhaps less than stellar. Its quarterly profit was 52 cents a share, above average estimate of 47 cents. However, it did post a net "loss" of 3 cents a share. Its revenue forecast for the next quarter will be $600-$605 million, which also missed the average projection of $611.8 million.
So, why did the stock go up so much? Fundamentally, investors (or, should I just say "people who are driving this stock) chose to focus the company's rise in membership. Its membership went up 6.1% in the last quarter. Revenue is the advertising and sales from premium subscriptions both rose. In addition, The company is also expanding into China. Personally, I also use LinkedIn a lot, to keep in touch with my colleagues, mainly in the entertainment (film/animation) industry.
Because I use LinkedIn, I can see the changes that the company is making and how much it is being used by companies and individuals alike. This gave me a special interest in the company.
Looking at the technicals, here's what I saw before LNKD's earnings report:
We can see from the chart that LNKD had been building a support at about $200 for over a week. The daily MAs were starting to bunch together. The 10-day MA was flattening and turning up. This support at $200 is important as it was also a breakout point back in August when LNKD had a gap-up.
Because the daily MAs were all bunched together, above $205, LNKD really didn't have much resistance until $230, the recent high. One important clue was the big "buying" volume on Thursday just before earnings. LNKD actually opened lower on Thursday, trading down to $195.5, but buyers soon came in and kept on buying.
I opened this trade on Wednesday:
We bought a small position in LNKD Oct 31, 205 calls. I also commented that we didn't need to chase. I knew there would not be any problems for my members to fill this trade because of the volatility. Buying the 205 calls at $6.4 with a target at between $220 to $230, I was looking for this trade to give me easily more than +100% in profit!
On Friday, LNKD quickly hit my target of $230, and I locked in the profit:
A nice +286% gain, or at 5 contracts, a $9150 profit!
To summarize, here are the key factors that went into my LNKD trade:
1) I use LinkedIn active and know the site well
2) LNKD's daily MAs were bunching up, building a base at $200
3) I went into the trade on a down day, a day before earnings. There was no telling when the buyers will start buying.
4) The buying was strong on the day of earnings and gave me more conviction to hold on to the trade.
5) The risk to profit ratio was small. Risk a little, but, the potential gain was huge!
My Ecstatic Plays portfolio is now up +115% just after 3 months of trading:
Some people might think I have one or two "big" trades that gave me the high returns. But, the fact is that the trades that I publish are realistic trades (no bigger than 50 contracts and usually between 5 to 30 contracts, with a dollar value staying mostly under $10k). From the above trade statistics, you can see that my winning % is about 72% after 170 trades!
I will be back tomorrow with my weekly Market Forecast.
Happy weekend and HappyTrading! ™