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Opening Drive Trade - LNKD

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The PlayBook is a valuable Webinar event held every Thursday at SMB. Throughout the week traders submit their analyses of a particular trade. They discuss the Big Picture, any news pertaining to the …

The PlayBook is a valuable Webinar event held every Thursday at SMB. Throughout the week traders submit their analyses of a particular trade. They discuss the Big Picture, any news pertaining to the particular stock at hand, and then offer a detailed explanation on why and how the trader behaved as he or she did. This week Mike discussed an Opening Drive in LNKD. For more information on The PlayBook Webinar Series, please go to www.smbtraining.com/blog

Published in: Economy & Finance

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  • 1. Opening Drive Play Leo Selya LNKD August 3rd, 2012
  • 2. Strategy Description• The SPY got above important resistance• LNKD gapped up in the after-hours• Held above the after-hours high in the pre-market• Extremely bullish setup that needs be played more aggressively• Explosive stock that is now more likely to move quickly in our favor• A type of Momentum Trade
  • 3. Opening Drive Play• “I cannot make money on the Open,” said by too many traders.• A pattern that works on the Open• Excellent risk/reward when you master this trade• Can be up big $$ by 9:45AM• Difficult trade• Quick execution skills• Gumption• Capture the Big Move
  • 4. Big PictureThe SPY has been in an ascending range since earlyJune. It finally got above 138.60 on the Open, whichwas the resistance level from the end of July.
  • 5. SPY vs. LNKD LNKD had been in consolidation between 103.50 and 104 at the top of the after-hours and pre- market action. It finally got above 104 as the SPY got above the 138.60 level. On the open, the SPY traded higher and LNKD made a push towards 108 which was the next major level. This stock had fresh news, but the bullish pre market price action coupled with the strength of the SPY, made it a better opening drive trade overall.
  • 6. Trade Idea• In the after hours, the stock traded above the prior day high and held above 100. Then in the pre-market, the stock drove over 102 and held between 103.50 and 104, above the action from the after hours.• This shows that not only was the reaction to earnings viewed positively, but the buyers clearly had control. This is my favorite pattern for an opening drive long. Seeing this pattern made me confident that I could take on a bit more risk in a stock that is normally rather thin and risky.• Probability is very important. There is a difference between risk/reward and probability. Just because a stock has a tight 5 cent consolidation and one is comfortable taking the trade, especially beginners, doesnt mean that it is likely to work.• Having this probability on my side, allows me to pay through offers on the opening drive and hold a core until the next level. The opening drive must stop eventually, thus we must understand where those sellers that had lost will legitimately thing that they have a chance to slow down these powerful buyers that had clearly been wining since the news release.• Naturally, the first place would be at the next big level of 108 and then the next level after that is 110. Thus, my play was to hold a long on the opening drive as long as it is above the 103.50/104 area and hope for a move close to 108.• Once the stock approaches the 108 area, my risk reward doesnt signal to hold anymore and I sell once it fails to get above 107.50 after having a battle.
  • 7. Intraday Fundamentals•Third-quarter revenue will be $235 million to $240million, Mountain View, California-based LinkedInsaid in a statement yesterday.•Full-year sales will be $915 million to $925 million,ahead of the $880 million to $900 million it projectedin May.•Analysts on average were predicting third-quartersales of $236.3 million and 2012 revenue of $906.3million, according to data compiled by Bloomberg.
  • 8. LinkedIn (LNKD)LinkedIn Corporation (LinkedIn) is aprofessional network on the Internet withmore than 90 million members in over 200countries and territories. Through theCompany’s platform, members are able tocreate, manage and share theirprofessional identity online, build andengage with their professional network,access shared knowledge and insights,and find business opportunities. Its Average Volume: 3.5 Millionplatform provides members with solutions, 52 Week Range: 55.98-120.63including applications and tools, to search,connect and communicate with business Short Float %: 8.0%contacts, learn about career opportunities, Average True Range (ATR): 4.65join industry groups, researchorganizations and share information. Itsmembers create profiles that serve as theirprofessional profiles and are accessible byany other member, as well as anyone withan Internet connection.
  • 9. Long-term Technical Analysis This shows the 107.70/108 area of resistance.
  • 10. Short-term Technical Analysis This shows the 107.70/108 area of resistance. This shows the hold above after-hours price action in the premarket.
  • 11. Reading the Tape• I noticed the buying in the pre-market and then I noticed how when offers would lift, the stock would just hold higher and not really drop out.• Once it got above the 104 offer, it never came back. On a move to 106.50 so quickly after lifting the 105 offer, the stock gets really steep and this is usually a good place to take sales. That being said, the 105 lift and move gives us a place to pay through 105 momentum and lock in some cash flow.• We still hold our core from 104 for some, but we take sales once it slows for whatever we paid over 105. Similarly, later when it pulls back to 104 and then lifts the 106 offer, we pay and capture the move towards 108. When the stock later forms a mini range between 107 and 107.50. It then forms a mini range between 107 and 107.40. This is a sign that the sellers stepped down.• Finally, a weaker tape and a change in character. Then when it lifts 40, it cant lift 50 cents and gets back below 40 cents. This is a huge change in character. For the first time since 104, the sellers are winning the battle over the buyers. I got much lighter here and then hit the rest below 107.• It is very important to get a feel for stock on the open. It is OK to be aggressive early on, but when things change, you must be disciplined enough to understand that this particular trade is over. There may be more in the stock, and it might not be done going up, but this opening drive has ended.
  • 12. Trade ManagementI got long when the stock was 103.50 by 104 andpaid for more over 104. Then 105 held the offer andI paid for more when that lifted again and sold intothe momentum towards 106.50. I continued to holdmy core from the 104 area because this setup canlead to an opening drive and a trend. Later around 107, the stock was tight between 107/107.50. Then When the stock pulled it became 107/107.40. The back towards the 104 sellers finally could step down area, I bought a bit and defend a price, this never more and then sold happened before. It is also below again into momentum. the 108 area of resistance. 40 Every time offers would cents lifted but 50 held and then hold around 105 or 106, it re-offered 40 cents. The tape I would buy more got much weaker I got much through the lift because lighter here and got flat below I can. The pattern still the 107. worked, it is an opening drive.
  • 13. Trade Review• This was a good trade. As traders, we need to use screen time to our advantage. When we see that certain trades work really well over and over again, we need to take advantage the next time we see it.• I knew that this was a tough stock, but the PROBABILITY was very important and allowed me to have confidence and get in the stock regardless. I knew that it had potential to drive on the open to the next level which was several points away.• However, I think I could have done a few things better. I could have been better at buying it back near 104 and paying for more. If I pay for more through the 105 lifts, I can hold more for the bigger move and take more sales along the way, making more money.• Sometimes it is tough to gauge a pull-in vs. a reversal on the Open. Thus, buying into the 104 area isnt the best place to add a lot, but certainly a place to add some. The place to add a lot is paying through these offers as long as the pattern doesnt chance.• Everyone tries to get in between 107 and 107.50 but in reality, this is a weak tape, the real place to make money is by having confidence, being aggressive, and capturing this opening drive. Once I already made money on the move pre market, I could have been a bit more aggressive with size once the bell had opened.
  • 14. Trade Idea•Long above the resistance at 108.•Watch 104 as possible support for a pullback play.•Longer term resistance is at 110 and 115.
  • 15. Contact informationmbellafiore@smbcap.com@mikebellafiore

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