Akamai at Key Pivot Point (AKAM)

Shares of Akamai Technologies Inc. (NASDAQ: AKAM) has been rallying higher since the beginning of August; this has pushed the stock back above the 50-day moving average and into a key pivot point.

Pivot points, or pivot prices, are key levels, where strong price movements one way or the other will occur in due time, though predicting the directional move is often difficult.

First and foremost, take a look at the company’s chart. It is plain to see that the stock is in a three-month downtrend; AKAM is now at the technical sell point for that trend. However, now that the stock has regained the 18-day and 50-day moving averages, the stock has increasing bullish support (this is not just technical, but fundamental as well, given the recent price action around its Q2 earnings report).

Wrapping up the technical aspects: the stock is trading well above the 200-day moving average, high enough for mean-reversion strategists to take a shot at the short side, and the Bollinger Bands have begun to tilt lower, a sign of general weakening.

So…how to play it:

• Bulls:
Buy the stock here at $43.88 and sell the November $35/50 strangle for $3.06. This gets you longer at the 200-day and short at the next resistance level. Max gain = 20.82% over the holding period (76.9% yearly gain).

• Bears

Buy the November $39/35 1x2 put spread for a net credit of $0.10. This gets you short the stock for minimal cash outlay, though does voice the opinion that the stock will not meaningfully break the 200-day moving average. Max gain = $3.90 (~3900%) at $35.00. Losses do not accrue until ~$33.00, down 23%.

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