We had a couple questions on our QnA and on the Twitters on two names due to report, AKAM tonight after the close, and DECK tomorrow after the close. Here are our answers:
AKAM
Are you guys going to do a trade on AKAM? It seems like straddles are working on this stock, on earnings.
We’re not going to do a trade on AKAM, but we looked at the name after you mentioned it. It’s been a big mover on earnings for sure, with a 4 quarter average move of 16% and a 8 quarter average of around 15%. The problem is that the options market is already pricing in about 12% for earnings, and the stock has support near $40 and resistance at the previous high around $48.50, with the stock currently at $44. So a larger than 12% move in either direction is certainly possible based on prior moves, but it does not seem probable based on the technicals. -Enis
Hi good question, taking a quick look at it now….the implied move is about 11%, the Aug 44 straddle is offered at $5, so u would need the stock above 49 or below 39 on Aug expiration to break-even, but obviously if u had that move or less tomorrow it would likely be profitable depending where Vol settles. The avg move over the last 4 qtrs has been about 16%, so if you bought the straddle and got a move in line with the recent average the trade would be a winner. Realized vol has ground down to 52 week lows, while implied vol is up near levels prior to the last 3 earnings events. IV is likely to come in 20 or 30 points after the event. I don’t know the company well enough to have a fundamental view, but from a technical perspective the 52 week high of ~48.50 should serve as decent resistance, while the 200 day moving average should serve as decent near term support right below the June low. It is definitely an interesting set up, but could remind me a little of NFLX into their print last night, after a series of very volatile earnings events over the last year, and a high implied move, the stock is not realizing the move, that could be painful to own, just ask any short dated premium owners in NFLX today. – Dan
DECK
What’s your view on DECK strangle into earnings?
Interesting set up, implied move is ~8% vs ~11.5% 4 qtr avg. 27% short interest makes a break above $60 ripe for short squeeze. But the stock’s 25% run into the print makes further upside only achievable on a meaningful beat and raise. Owning premium is tough.
Technically speaking, the $60 level has acted as resistance a few times this year. If it’s able to break above there on a positive report, major supply doesn’t come into play until 70-75.
Fundamentally, the main reason for the turn in the stock has been the stabilization in earnings, after a steep fall from 2011 to 2012. However, the expectations bar has been raised as the stock has rallied in the past 9 months, going from a 10 P/E name to 17 P/E now. Interestingly, short interest, while at its lowest level in the past year, is still at 27.5% of float.