LinkedIn options: Pricing is 'unusual'

LinkedIn options, trading for the first time Friday, had twice the premium on the puts compared with calls. Are LinkedIn's investment bankers trying to keep shares from falling?

As LinkedIn options trade for the first time today (Friday), pricing remains a bit unusual because of the newness of the social-networking stock.

The June 87.50 puts are trading for about $9 while the June 87.50 calls are going for just half that premium. Implied volatility is twice as high in the puts than the calls, even though the shares are at $87.27, barely below that strike price.

That kind of disparity results from the fact that LNKD shares[LNKD 88.32 1.95 (+2.26%) ] are so hard to borrow, costing something like $0.40 a day. This matters because if someone wants to buy puts, the dealer taking the other side of the trade will end up implicitly long because they're now on the hook if shares fall.

They normally hedge that kind of exposure by selling the stock. When it costs so much to borrow the shares for the purpose of shorting, it inevitably drives up the cost of puts. It's a bit like higher beef prices pushing up the cost of a Big Mac!

The rate to borrow LNKD seems to be falling, but John Tabacco of securities-lending portal LocateStock.com, says the market still isn't very loose — possibly because the investment bankers who underwrote LinkedIn's IPO are keeping the expense high to prevent a major bear raid on the stock, which doubled on its first day of trading.

As of this writing, LNKD is up 1.04 percent to $87.27 in afternoon trading but is well off the $122.70 high that it reached in its maiden session a week ago.

Disclosures:

Jon Najarian, cofounder of OptionMonster.com, has no positions in LNKD.