Tuesday, December 27, 2011

Akamai Technologies (AKAM) - Depressed Vol After Stock Spike; Acquisition Looks to Make Acquirer an Acquired

AKAM is trading $32.12, up 0.6% with IV30™ up 5.6%. The LIVEVOL® Pro Summary is included 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.

I found AKAM using a real-time custom scan. This one hunts for low vols. The elevated HV20 is a bit misleading, more on that in a sec.

Custom Scan Details
Stock Price GTE $7
IV30™ - HV20™ LTE -8 GTE -40
HV180™ - IV30™ GTE 7
Average Option Volume GTE 1,200
Industry != Bio-tech
Days After Earnings GTE 32

The snapshot of the scan is included (below) in case you want to build it yourself in Livevol® Pro.

The goal with this scan is to identify short-term implied vol (IV30™) that is depressed both to the recent stock movement (HV20) and the long term trend in stock movement (HV180). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), want to avoid bio-techs (and their crazy vol) and make sure I'm not purchasing depressed IV30™ relative to HV20 simply because of a large earnings move.

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

We can see that the IV30™ is depressed relative to the two historical measures. But, the HV20 is elevated b/c of a large pop on 12-22-2011. Here's the news on that day from The Motley Fool.

What: Shares of content delivery network specialist Akamai Technologies (Nasdaq: AKAM ) are delivering solid gains today, up by 20%, after the company announced it was acquiring smaller competitor Cotendo.

So what: Akamai is picking up the company for $268 million in cash, taking out one of its direct rivals to its lucrative Value Added Services business. The deal has even brought up speculation that Akamai itself could appear to be an attractive acquisition target now.

Source: Akamai Shares Soared: What You Need to Know, by Even Niu.

Tricky... An acquisition that may lead to an acquisition. The stock went from $26.67 on 12-21-2011 to $32.12 as of this writing, or up 20.4% in six calendar days. The current vol comps are:

IV30™: 45.24
HV20: 72.83
HV180: 60.09

Let's turn to the Skew Tab, below.

Check out how depressed the Jan options are to Feb. That's likely due to earnings as the last two years earnings for AKAM were 2-3-2010 and 2-9-2011.

Let's look to the Options Tab (below) for completeness.

Feb vol is priced to ~52 while Jan is priced to ~42. It's interesting how little the implied has been affected by the large move / news. On the day before the announcement IV30™ closed at 42.34% ad today it's just a few points higher. The Jan ATM straddle (32.5 strike) is worth ~$2.80 priced to mid-market. Given that the stock moved $5.45 in six calendar days on event news, it's notable that the future for Jan is priced relatively... quietly...

This is trade analysis, not a recommendation.

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