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Friday, March 4, 2011

Akamai Technologies (AKAM)

Akamai Technologies (AKAM) is a technology company that provides services for accelerating and delivering applications over the internet. The company's network currently handles more than 15% of all web traffic. It is also a frequent takeover target. Here is a good article explaining a little of what Akamai does.

After the most recent quarter's earnings, the stock got absolutely hammered due to lower guidance. It went from $54 down to its current price $37. I think this makes it an appealing opportunity for a buy-write that can be very profitable even if the stock doesn't move at all in the next 19 mos.

Buy 100 AKAM @ 37.78:       ($3,778)
Sell 1 Jan 13 35 call @ 10.8:     1,080
Sell 1 Jan 13 35 put @ 6           600
Total cash outlay:             (2,098)

Potential Return:   $1,124 or 54% on cash invested. Max profit can be obtained whether the stock goes up, stays the same, or drops less than 7%

Break-even: $27.99 giving a margin of safety of 26%.

I think a few things make this a good, safe trade. One is that the stock is severely depressed currently. Another is as more and more people begin using tablets and smart phones, this will only increase the demand for the services Akamai sells. The worst case scenario is that you have to own the industry leader in one of the most rapidly growing markets at a 25% discount from current prices.


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