Had a few questions about Akamai. Here’s some info. With AKAM at $34.50
- Options showing about 11.5% implied move vs the 4 qtr avg move of about 16%.
- The chart reminds me very much of CSCO over the last 6 qtrs, where there were a few significant earnings misses and massive gaps lower, and then a bottom made late summer/fall helped by an earnings beat and then no looking back for the stock.
- The Street is pretty mixed on the name with 9 Buys, 14 holds and 2 sells, and short interest isn’t exactly high at about 4.5%.
- Technically it is an interesting set up as most of the 86% gains off of the Oct lows were made leading up to the New Year while under-performing the Nasdaq this year, only up 6%.
- I think the big risk in the shares here is the rally the stock has had since agreeing to buy competitor Contendo on Dec 22 (read here.) Stock is up 25% since then, so they have added more than $1billion in market cap after making a $268million dollar acquisition… not a bad trade for them, even after paying about 9x sales for the company.
- Implied vols are through the roof in Feb as u would expect by the implied move, at the money implied vol in march is at 52 vs the 30 day realized of 26.5 and the 60 day realized of 48.5. Feb at the money vol is 86,
My Take:
This is a tough one and buying the move will be a hard way to make money….u almost have to pick a direction….If the company can beat and raise and talk up Contnedo than the stock is likely to break out above the huge resistance level at $35 (it was briefly above there this morning). But if the company doesn’t raise forward guidance I would expect a good bit of the Contendo premium to come out of the stock and quickly, like tomorrow.
If you were bullish and thought the stock could outperform the implied move and possibly go up in line with the avg over the last 4 qtrs then u could look at the feb 36/40 call spread offered at about 1.00 (stock ref 36.40)….if stock up 16% (in line with avg move) then gets u too 40 and that offers a payout equal to 3 to 1, not bad, with break-even of 37, up about 7.5%….also a tough way to make a living as u have to get direction right and get a fairly healthy move just to break even.
If you were bearish, you could consider the Feb 34/30/26 put fly for about 1.00 (stock ref 36.40) , this has break-even at 33, down about 4%……max gain of 3.00 at 30.00, down about 13%, payout trails off from 30 to 27 and then u start to lose 27 to 26, max loss of 1.00 below 26 and above 34. I dont really love the fly, but the outright put spreads are fairly expensive….the Feb 34/30 put spread is about 1.45, risking 1.45 to make 2.55, not a huge fan of that risk /reward profile.
So I guess the net of it is, I don’t have a strong view one way or the other, and if you have a view about the company that stretches beyond earnings then you would probably want to consider a calendar by selling Feb and buying march or maybe even April.