A Cheaper Way to Hold Long Position Than by Owning LinkedIn

| About: LinkedIn (LNKD)

Let me make this really simple. Regardless of how bullish you are on LinkedIn (NYSE:LNKD) there is absolutely no excuse for owning this stock because there is a much, much cheaper way to hold your long position.

For quite some time the LinkedIn options have been mispriced, with the time value of the puts far greater than the time value of the calls. The reason that this "inefficiency" persists is that you can't easily arbitrage this mispricing away because you can't short the stock. Another way to put this (no pun intended) is that there is so much overwhelmingly negative sentiment out there that people are bidding up the price of the puts relative to the price of the calls and there are no shares to be had for shorting.

However, whoever these people are that own LinkedIn stock are the only ones who can engage in arbitrage right now. This is really easy. These people should immediately sell their stock and then run, don't walk, to the options market and sell puts and buy calls at the same, near the money, strike. Here is the math as of 10:43 this morning using the mid-point between the bid and ask on the options:

  • Sell 100 shares of stock at $89.69
  • Sell the Sept 90 put at $16.55
  • Buy the Sept 90 call at $7.55

You just got $8969 from your stock and pocketed an extra $900 and your ultimate payout is $869 ($900 - $31) more than owning the stock outright. It's a free 9.7% instantaneous gain.

This will work for any number of strike prices and expiration months. In fact, I believe the higher strike prices have better economics. Try it. You'll like it.

Disclosure: I have a neutral position in options in this stock.