CHICAGO (Reuters) - So much for the expected mad rush to bet against LinkedIn Corp. LNKD.N in the U.S. options market.
The enormous gain in the stock on its explosive debut last week had made it a tempting target for investors convinced the rise was unwarranted.
With the ability to sell the stock short in the cash equities market very limited so far, the listing of its options on U.S. exchanges was seen as an easier avenue to profit from a decline in the share price.
But even those with the darkest convictions about the social media network’s shares found it a very pricey wager to make when the options debuted on Friday. And that kept an anticipated wave of bets on a drop in LinkedIn shares from gathering a full head of steam.
“When the options price gets to be too high, the reward to risk ratio becomes less attractive to speculators expecting a downside move,” said Gareth Feighery, chief executive and founder of MarketTamer.com, a stock and options education firm in Philadelphia.
In short, not a trade for the average bear.
In all, 22,000 options on LinkedIn traded, with about 12,000 puts traded versus 10,000 calls, according to options analytics firm Trade Alert.
Most active on the day were the June $75 puts, with 1,400 contracts traded, followed closely by the June $65 puts, with about 1,372 contracts exchanged.
The June $90 strikes were the most active on the call side, but fewer than 1,000 contracts had traded by late Friday.
The price on LinkedIn puts were roughly four times those for a comparably priced tech stock on Friday. Take Citrix Systems Inc. (CTXS.O), whose shares were trading in the mid-80-dollar range like LinkedIn.
During the session, Citrix’s June at-the-money options — those with strike prices nearest the stock’s current price — traded on average at $2.24 for calls and $2.57 for puts, according to data from Trade Alert. LinkedIn’s at-the-money contracts averaged $4.29 for the calls and $8.61 for the puts.
LinkedIn’s volatility has been a contributing factor.
Setting aside its 100 percent gain on day one, the stock has moved up or down by 5 percent a day on average since, with the average trading range exceeding $9 from top to bottom.
On top of that, the float of shares in circulation is so small and new that LinkedIn’s stock has become very hard and expensive to short. Put those together and the option becomes rich.
“The fact that the stock is hard to borrow and not being able to be easily shorted has become a factor in the pricing of the options, specifically in the puts,” said Joe Cusick, senior market analyst at online brokerage firm optionsXpress.
Options market participants expect the volume to pick up next week with the expected debut of weekly contracts, and later in June when some of the lending restriction deadlines for the IPO underwriters expire.
Reporting by Doris Frankel; Editing by Andrew Hay