Thursday, October 13, 2011

Akamai Technologies (AKAM) - Stock, Vol and Skew Pop on Google Takeover Rumors

AKAM is trading $24.48, up 4.8& with IV30™ up 5.1%. The LIVEVOL® Pro Summary is below.


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Akamai Technologies, Inc. (Akamai) provides services for accelerating and improving the delivery of content and applications over the Internet; ranging from live and on-demand streaming video capabilities to conventional content on Websites, to tools that help people transact business and reach out to new and existing customers.

This is an order flow note driven by what seem to be unconfirmed takeover rumors surrounding AKAM as the target and GOOG as the big bad wolf. AKAM has traded over 26,000 contracts on total daily average option volume of just 13,611. Calls have traded on a 2.6:1 ratio with the action in the Oct OTM calls. The Stats Tab and Day's biggest trades snapshots are included (below).

The Options Tab (below) illustrates the action further (green numbers are the volume). Note that Oct vol is up 6.9 points and Nov is up 3.2 vol points.

The Skew Tab snap (below) illustrates the vols by strike by month.

We can see that while the ATM vol in Oct is below Nov (earnings are likely due out in Nov), the OTM vol is priced above Nov. It's both the upside and downside that have been affected today. I've highlighted that vol difference between the front two months. I have also included this same skew chart from exactly two weeks ago, 9-30-2011, below.

Two weeks we can clearly see that the OTM options were priced to similar vol between the front two months, and now the order flow (and rumors) have pushed the Oct upside well above Nov (in terms of vol) and the downside is playing the expiration game where prices become sticky pushing OTM vol up.

Finally, the Charts Tab (6 months) is below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

Check out the last two earnings cycles (circled) -- the stock gapped down hard both times. Noting again that the downside is priced to higher vol in Oct than Nov and that Nov actually has the earnings event, that's... interesting...

Possible Trades to Analyze
A bunch of ways to examine this one. There's the rumor (buying it), selling the rumor, spreading the upside horizontally, spreading the upside diagonally giving or taking deltas and finally, spreading the downside. That earnings in the Nov cycle is particularly interesting given the last two stock reactions.

This is trade analysis, not a recommendation.

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