Stocks quoted in this article:
Option Brief: Akamai Technologies, Inc. (NASDAQ:AKAM) was targeted by option players from both sides of the aisle yesterday, with overall activity soaring to nearly six times the average daily volume. Diving deeper into the data reveals that one speculator used both calls and puts to initiate a two-pronged hedge against any potential downside over the next several months.
Shortly after the opening bell sounded on Tuesday, two symmetrical blocks of 5,396 contracts changed hands at AKAM's February 2014 39-strike put and February 2014 48-strike call. The former traded near the ask price for $0.90 per contract, while the latter went off near the bid price, at $1.65 each. Implied volatility ticked higher at the transactions, and open interest rose overnight, making it safe to assume that a collar was established for a net credit of $0.75.
By purchasing the puts, the shareholder has locked in a minimum sale price of $39 per share, should Akamai Technologies retreat south of this mark over the next 11-plus weeks (the equity is currently trading at $46.15). Meanwhile, by selling the out-of-the-money calls, she has offset the cost of buying the protective puts, but she has also put herself at risk of assignment, should the shares shoot past $48 by the time the options expire in February.
The lifetime of the collar encompasses Akamai Technologies, Inc.'s (NASDAQ:AKAM) tentative fourth-quarter earnings release. AKAM has experienced some wild price swings in the session following its quarterly results, including an 11.2% drop in late October and a 17.7% pop in late April, so it could be that the aforementioned trader is bracing for a big earnings-induced move.