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Akamai Technologies Traders Bet on Earnings-Induced Upside

AKAM's front-month calls were popular on Friday

by 2/4/2013 10:13 AM
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Option players targeted Akamai Technologies, Inc. (NASDAQ:AKAM - 41.81) calls on Friday, with the bullishly slanted bets more than tripling the number of puts that changed hands. By the numbers, 7,844 calls crossed the tape, compared to 2,504 puts. The two most active strikes on the day were AKAM's February 42 and 43 calls, which saw a respective 1,183 and 1,407 contracts trade. A healthy portion of the contracts at each strike went off at the ask price, implied volatility ticked higher, and open interest rose over the weekend -- pointing to buy-to-open activity.

By purchasing the out-of-the-money February 42 calls for a volume-weighted average price (VWAP) of $1.88, traders will profit with each step north of $43.88 (strike price plus initial premium paid) AKAM takes through the close on Friday, Feb. 15, when front-month options expire. This breakeven level is a 5% premium to the equity's current perch. Meanwhile, breakeven for the further out-of-the-money February 43 calls is $44.41 (strike plus the VWAP 0f $1.41), or 6.2% above the stock's present level.

With AKAM slated to take its turn in the earnings confessional after the market closes this Wednesday, Friday's call buyers weren't afraid to pay up for these option premiums. The stock's Schaeffer's Volatility Index (SVI) of 66% ranks in the 70th percentile of its annual range. More specifically, implied volatility at each strike is currently inflated relative to the stock's 20-day historical (realized) volatility (65% vs. 20.3%), suggesting premiums for these short-term options are relatively expensive heading into this week's scheduled event.

On the charts, AKAM has put in a solid performance over the past 52 weeks, with the stock up roughly 24% in that time. The equity recently pulled back after hitting a new annual high of $42.53 on Jan. 2, but managed to find a foothold atop its rising 40-day moving average.

As touched upon, the cloud concern is slated to unveil its earnings report after the closing bell on Wednesday. Friday's call buyers could be hoping for history to repeat itself, as the stock has enjoyed moves to the upside following bottom-line wins in each of its last two quarterly showings. For AKAM's fourth quarter, Wall Street is calling for a profit of 50 cents per share.


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