Call Trading Soars on Akamai Technologies

              

According to Hoover's, Akamai Technologies' (AKAM: sentiment, chart, options) products enable companies and government agencies to deliver Web content and applications, such as ads, business transaction tools, streaming video, and Web sites. Through its network of some 30,000 servers in about 70 countries, Akamai analyzes and manages Web traffic, transmitting content from the server geographically closest to the end user.

The stock recently saw a surge in call trading on the International Securities Exchange, indicating that hopes are on the rise toward the security. On Friday, 8,781 calls were bought to open on the exchange compared to only 146 puts. This action resulted in a call/put volume ratio of 60.14, or 60 calls were bought for every 1 put purchased.

The Schaeffer's put/call open interest ratio (SOIR) suffered a sharp drop as a result of this heavy call trading. The ratio tumbled overnight from 0.65 to 0.52 as call open interest among near-term options swelled by 16,900 contracts, while put open interest increased by just fewer than 1,600 contracts. The current SOIR is now lower than 75% of all those taken during the past year. In other words, options players have been more optimistic just 25% of the time during the past 12 months.

Drilling down into the stock's open interest configuration, we find that its out-of-the-money September 25 call added more than 6,000 contracts on Friday and has traded another 1,385 in today's action. Open interest at this strike numbers more than 19,500 contracts. The September 30 call isn't far behind. On Friday, it added approximately 4,000 new positions, pushing open interest up to 11,379 contracts. On the other hand, put open interest is extremely light by comparison. The September 22.50 put is the site of peak front-month put open interest with fewer than 5,400 contracts. This skew toward the call side indicates that investors have high hopes for the shares to break out to the upside.

Options players aren't the only ones with high expectations for the shares. According to data from Zacks, 11 of the 21 analysts following AKAM rate it a "buy" or better, while not 1 gives the stock a "sell" rating. This configuration leaves ample room for downgrades, which could spell trouble for the shares.

What's more, the 12-month average price target for the shares rests at a lofty $34.48, according to Thomson Financial. This figure implies that analysts are expecting the shares to rally roughly 50% during the next year. Should these brokerage firms adjust their price targets lower, the action could weigh negatively on the security.

Technically Speaking

From a technical perspective, the shares haven't done much to earn this swelling of optimism from Wall Street and options players. During the near term, the shares remain trapped in a sideways channel between resistance at the 24 level and support in the 22 region. Furthermore, the stock's recent rally attempt was stopped cold at its declining 20-day trendline.

From a longer-term perspective, the security has been trapped in a downtrend since reaching a peak in February 2007 at $ 59.69, resulting in a loss of more than 61%. During this time, the stock has suffered a series of lower highs and lower lows.

Overall, this combination of growing optimism in the face of the security's weak technical performance has bearish implications. Should these bulls begin to exit their long positions and go looking for greener pastures, it could increase the selling pressure on the security.

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