What's Next for Akamai (AKAM)?

10/14/2008 12:42 pm EST

Focus: STOCKS

Nick Perry

Equity Options Trader, Schaeffer's Investment Research

The shares of Akamai Technologies (AKAM) are up nearly 6% this afternoon, following the rest of the broad market higher after last week's sharp downturn. The stock was reiterated at "market perform" at Friedman Billings this morning, but its price target was trimmed from $26 to $20. This price target represents a 33.8% rally from the stock's current price of $14.95.

Sentiment on Wall Street is somewhat mixed at the moment toward AKAM. The stock has earned ten "strong buy" ratings and 11 "holds." Meanwhile, the average 12-month price target stands at $29.27, according to Thomson Financial. This lofty estimate implies that analysts are expecting the shares to rally 96% during the next 12 months. Additional price target cuts from Wall Street could weigh on the shares.

Elsewhere, we find that options speculators are extremely optimistic when it comes to AKAM. The Schaeffer's put/call open interest ratio for AKAM stands at 0.32 and is at an annual low-pointing to extreme optimistic sentiment.

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This extreme in optimism can also be seen by looking at the stock's front month open interest configuration. Peak October call open interest resides at the deep out-of-the-money 22.50 strike, with more than 12,600 contracts, while the October 17.50 call is home to another 8,200 contracts. On the other hand, peak front month put open interest resides at the 15 strike, with only 3,000 contracts. This preference for out-of-the-money calls indicates that investors have high expectations for the shares.

Technically speaking, the stock has gained almost 6% this afternoon, but is currently struggling with resistance at the 15 level in the form of its ten-day moving average. The equity has been pressured lower by resistance at its ten- and 20-day trend lines since the beginning of June.

A rejection at these trend lines could send the shares sharply lower as the bulls unload their long positions.

By Nick Perry of Schaeffer's Trading Floor Blog

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