Best Tech Bet for Options Bulls

AKAM has had a number of volatile swings the past two months

by Bernie Schaeffer

Published on May 5, 2020 at 3:26 PM

Cloud computing name Akamai Technologies, Inc (NASDAQ:AKAM) is one of many the many stocks suffering a volatile swings during the past two months. When trading during such an unsteady stock market climate, it’s important to gather ample support behind any decision when it comes to your portfolio. One way we gauge what a potential pullback means for a particular stock is through its moving averages, specifically diving into the historical data to identify any trends that could signal us toward the equity’s next move. Below we will take a look at the bull signal flashing for AKAM, and why now may be a good time to bet on the security’s next move higher.

To meet our criteria, the stock must close above the said moving average 60% of the time over the past two months, in eight of the last 10 trading days, and be within one standard deviation of said trendline. According to Schaeffer's Quantitative Analyst Chris Prybal, Akamai Technologies stock has come within one standard deviation of its 200-day moving average. The security has seen two similar pullbacks within the past three years, of which have resulted in an average 21-day gain of 6.3%, with 100% of the returns positive. At AKAM's Thursday close of $97.71, a similar bounce of that magnitude would have the stock trading just shy of $104 -- a chip shot from the stock’s 20-year high territory.

CotW AKAM Chart

Digging deeper into the IT and consulting giant’s technical background, the stock has climbed 11% in 2020, and earlier last month touched a 20-year peak of $108.25 on April 20. The aforementioned 200-day trendline has captured multiple setbacks for the stock since early December, but most recently caught a brief drop in early April. Another floor of support for the shares long term has been the $84 mark, a key level during the equity’s notable mid-March drop.

Lastly, now looks like an opportune time to get in on AKAM's next move with options. The security's Schaeffer's Volatility Index (SVI) of 34% stands higher than just 20% of all other readings from the past year, implying that near-term option traders are pricing in relatively low volatility expectations.

Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, May 3.

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