High-Flying Tech Stock With Cheap Options

Low volatility expectations are being priced into near-term AKAM options

by Karee Venema

Published on Feb 28, 2018 at 11:47 AM
Updated on Jun 24, 2020 at 10:16 AM

Akamai Technologies, Inc. (NASDAQ:AKAM) has been hot in 2018, thanks mainly to the cloud concern's post-earnings bull gap earlier this month. Analysts were quick to chime in with price-target hikes after the results, too, which helped send AKAM stock soaring back near its Jan. 9 annual high of $69.56. And even though this recent price action just echoes the equity's longer-term uptrend, with AKAM up 45% in the last nine months, there's still room for more skepticism to be unwound.

In fact, AKAM recently popped up on a list of stocks that have outperformed the S&P 500 Index (SPX) over the last six years, but have seen a decrease in bullish brokerage ratings. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, 33% of covering analysts currently maintain a "buy" recommendation on the security -- down from 47% since October 2011. This leaves the door open for upgrades to keep the wind at Akamai Technologies' back.

The tech stock could also get a boost, should short sellers continue to cover. Though short interest is down 43% since December, there are still 6.20 million AKAM shares sold short -- representing four days' worth of pent-up buying demand, at the stock's average pace of trading.

Those wanting to bet on more upside for the tech shares should consider doing so with options, considering AKAM stock's Schaeffer's Volatility Index (SVI) of 23% ranks in the 9th annual percentile. In other words, low volatility expectations are being priced into short-term contracts.

Plus, Akamai Technologies stock has a Schaeffer's Volatility Scorecard (SVS) reading of 93 (out of 100). This indicates the security has consistently outperformed options traders' expectations over the past year -- a potential boon to premium buyers.


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