Akamai Technologies, Inc. (AKAM) M&A Upgrade Sparks Fresh Round of Bullish Betting

Oppenheimer upgraded Akamai Technologies, Inc. (NASDAQ:AKAM), calling the tech stock a potential takeover target

Dec 14, 2016 at 2:56 PM
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Shares of Akamai Technologies, Inc. (NASDAQ:AKAM) are trading up 3.3% at $67.26, after Oppenheimer upgraded the stock to "outperform" from "perform." The brokerage firm said it expects AKAM growth to accelerate in the second half of 2017, and called it a "viable acquisition target" for cloud companies. This positive price action is nothing new for AKAM stock, which is boasting a nearly 28% year-to-date lead, and is within a chip-shot of taking out its Oct. 31 annual high of $71.04. And while options traders have been busy betting on more upside -- with those currently purchasing near-term premium getting a relatively good deal -- skepticism from other corners of the Street may be enough to boost the tech stock higher.

Drilling down on AKAM's options activity for a moment reveals calls have been bought to open over puts at a faster-than-usual clip of late. Specifically, the stock's 10-day call/put volume ratio of 3.36 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks in the elevated 80th annual percentile. Echoing this is AKAM's Schaeffer's put/call open interest ratio (SOIR) of 0.67, which rests below 85% of all comparable readings taken in the past year. Simply stated, short-term speculators are more call-heavy than usual toward the security.

This accelerated call activity is continuing today, with more than 7,100 AKAM calls on the tape -- three times what's typically seen at this point in the session. Most active is the January 2017 70-strike call, where it seems safe to assume new positions are being purchased. In other words, call buyers expect AKAM to rally north of $70 by the close on Friday, Jan. 20 -- when the back-month options expire.

Should these calls expire out of the money, the most the options buyers stand to lose is the initial premium paid. And with low volatility expectations currently priced into the stock's near-term options, premium is relatively inexpensive at the moment. In fact, AKAM's Schaeffer's Volatility Index (SVI) of 23% ranks in just the 2nd percentile of its annual range, while the equity's 30-day at-the-money implied volatility of 24.8% is docked below 85% of all similar readings taken in the past 12 months.

Outside of the options pits, meanwhile, there's plenty of skepticism to be found toward the booming tech stock. Although short interest fell 21.1% in the most recent reporting period, there are still 8.3 million AKAM shares sold short -- and it would take nearly a week to cover these bearish bets, at the stock's average pace of trading. Plus, the majority of analysts covering the shares maintain a "hold" or "strong sell" rating. Should Akamai Technologies, Inc. (NASDAQ:AKAM) maintain its upward trajectory, a continued round of short covering or a fresh batch of bullish brokerage notes could translate into an additional burst of buying power for AKAM stock.

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