Investors unable to short sell LinkedIn Corp., which just completed the hottest U.S. stock offering since at least 2006, can start betting against the shares using options today.
LinkedIn, the first social-media company to go public in the U.S., traded for 31 times annual sales on May 19. While investors such as Gamco Investors Inc.’s Lawrence Haverty said the stock is overvalued, bears have borrowed 65 percent of the shares available for shorting, making it hard to wager against, according to New York-based Data Explorers. The average for Standard & Poor’s 500 Index companies is 8.2 percent, and only five stocks in the measure have higher figures.
The options are giving traders another way to profit from declines in Mountain View, California-based LinkedIn. The shares have jumped 94 percent since the initial public offering, which was priced at $45. The cost to borrow LinkedIn stock to short them is rated a 10 by Data Explorers, the highest level on the research firm’s scale.
“Since the cost of shorting the shares is so much, that’s the route people are going to take,” Patrick Mortimer, director of options trading at Pipeline Trading Systems LLC in New Hope, Pennsylvania, said of the equity derivatives. “They’re going to be coming after puts, and market makers are going to be raising their offers.”
Surging demand for social-media stock and a comeback in venture-capital IPOs propelled LinkedIn to a high of $122.70 in its first day of trading from an initial price of $45. With a market value of $8.26 billion, the company must boost revenue by 144 percent a year, twice its growth rate since 2009, to bring its price-sales ratio in line with the Dow Jones Internet Service Index by 2013, Bloomberg data show.
The stock rose 1.1 percent to $87.35 at 10:15 a.m. in New York.
June $80 puts were the most active in the first minutes the options were offered, trading at $5. February $87.50 calls and July $90 puts were the next-most-active.
LinkedIn is worth $30 to $35 based on a forecast for earnings before interest, taxes, depreciation and amortization of $104 million in 2012, Haverty said this week. The shares have been driven higher by scarcity that won’t last, said Haverty, Kevin Shacknofsky of Alpine Mutual Funds and Brian Barish of Cambiar Investors LLC.
LinkedIn sold 7.84 million shares on May 18. Trading volume the next day was 3.8 times higher than that amount, the biggest difference between supply and demand in at least five years for an IPO of a U.S.-based company, according to data compiled by Bloomberg.
About 18 percent of LinkedIn’s shares available for trading are on loan, according to Data Explorers. That compares with an average of 2.9 percent for the S&P 500, the data show. LinkedIn would be the ninth-most-shorted stock in the index if it were in the benchmark measure of U.S. equities.
“The short-selling data is showing us that there are people who couldn’t wait for the options market to start trading LinkedIn before they initiated their bet against the company,” said Will Duff Gordon, a senior research analyst at Data Explorers, in an interview in New York. “If you think something’s overvalued, then the quicker you bet against it the better, even if the stock is hard to borrow.”
© Copyright 2015 Bloomberg News. All rights reserved.