What’s up with Akamai?

Akamai’s (AKAM) call option volume was out of the ordinary yesterday. Akamai’s stock price was up a little over 3% yesterday as well.

If you need your website performance improved, Akamai is the company for you. Akamai provides products and services for accelerating Internet delivery. Akamai claims it handles 20% of Internet traffic.

Akamai’s competitors include: Level 3 Communications (LVLT), Limelight Networks (LLNW) and Mirror Image Networks (private).

Akamai’s stock price is up about 100% from its low in December of 2008. Akamai’s stock price took a pretty big hit on high volume near the end of July as a result of a poor earnings outlook.

Akamai’s October 21 call option volume was through the stratosphere yesterday. This call option was slightly out-of-the-money and there’s only three days to expiration, so apparently somebody is very bullish on Akamai. November call options with strike prices of 21 and 22 were also very high yesterday. Put option volume appears slightly higher than normal.

The Strike of Pain for Akamai for October expiration is at a strike price of 18 which is below the current stock price for Akamai. This is a bearish indicator for Akamai, but if the high option volume for Akamai continues in a similar manner as yesterday, then the Strike of Pain will increase. The Strike of Pain represents the strike where the options buyers will lose the most money and the option sellers will gain the most money at expiration.

The interest in Akamai may stem from Cisco’s (CSCO) announcement to acquire Starent Networks (STAR) yesterday. Starent provides hardware and software for delivering multimedia to mobile subscribers. The gist would be that if a company is interested in acquiring Starent, then a company might also be interested in acquiring Akamai. Akamai also has an earnings report due October 28, but this is after October options expiration, so this is probably not the reason for the interest in Akamai’s call options yesterday.

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A covered call investing position for Akamai for November looks attractive with a potential return of 5.3%. The time frame for realizing the potential return is only 38 days. The call option of interest would be the November 21 with ticker symbol UMUKT.

To enter the covered call investing position an investor would purchase the stocks in multiples of 100 shares and sell one call option for each 100 shares of stock purchased.

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[tags] Strike of Pain, AKAM, Akamai Tech. Inc., CSCO, Cisco Systems Inc., LLNW, Limelight Networks Inc., LVLT, Level 3 Comm. Inc. [/tags]