AKAM shares could be headed for a rough patch, if history repeats
Cloud service stock Akamai Technologies, Inc (NASDAQ:AKAM) has had a tumultuous 2017 thus far. The software stock out of Massachusetts opened the year strong, bursting out of the gate to notch an annual high of $71.64 on Jan. 11. However, this success proved fleeting, as AKAM stock has since stair-stepped lower, enduring a post-earnings bear gap in early May, and subsequently touching an annual low of $46.81 on May 31. Akamai stock is now staring up at its 10-week moving average, and if recent history is any indicator, the shares could be in for another leg lower soon -- but AKAM options traders can get in on the action on the cheap.
According to Schaeffer's Senior Quantitative Analyst Rocky White, Akamai is the worst S&P 500 Index (SPX) stock to own in the month of July, going by average returns over the past 10 years. For that month, the stock has averaged a loss of 8.7%, and has been positive just 30% of the time. AKAM stock has also found its way on the list of worst S&P stocks in the third quarter, where its average quarterly loss of 6.8% ranks as the fourth worst among SPX stocks over the past decade. (For speculators seeking historically bullish stock trading ideas this summer, consider FAANG stocks or biotechs.)
Akamai Technologies is scheduled to report earnings again on July 25. AKAM stock has performed terribly following earnings releases lately, gapping lower in the session after three of its last four reports. As mentioned earlier, AKAM stock tumbled nearly 16% the day after its May earnings release, and dropped nearly 11% after earnings in February. Roughly a year ago, in July 2016, AKAM fell 13% the session after earnings.
Still, AKAM stock sports a Schaeffer's put/call open interest ratio (SOIR) of 0.55, which sits at just the 16th percentile of its annual range. In other words, near-term options traders are much more call-biased than usual, relative to the past year. In addition, open interest is notable at the July 50 and 52.50 call strikes, which boast a combined 7,016 contracts outstanding. The August 50 call is home to peak open interest among all series, with nearly 4,400 contracts in residence. This could act as near-term options-related resistance for the shares, which were last seen flirting with $50.
In conclusion, if traders are expecting more of the same from AKAM stock as the summer months heat up, short-term put options are attractively priced right now. AKAM's Schaeffer's Volatility Index (SVI) of 23% stands higher than just 9% of all other readings from the past year, indicating historically low volatility expectations being priced into Akamai's near-term contracts. In addition, its Schaeffer's Volatility Scorecard (SVS) sits at a lofty 71, implying that Akamai stock has exceeded options traders' volatility expectations during the past year.