We hold a round lot of stock whose cost basis has been reduced to 11.01 by the sale of options over time. With AKAM approaching a Hidden Pivot resistance at 28.49, let’s plan on shorting a March 28 call if and when the stock gets within 0.05 points of the target. Mark the order good through Thursday. ______ UPDATE: The stock popped to 28.75, allowing us to short the call against our stock for 0.94 before AKAM receded 72 cents. Do nothing further for now. _______ EXPIRATION UPDATE: We let our stocks get called away at expiration for an effective 28.94, yielding a theoretical gain of of nearly $1700 per round lot. We can start anew if another great opportunity presents itself.
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Akamai Technologies
Bid 0.05 for a February 27 call to neutralize the risk of the February 29 call that we shorted a while back for 0.60. We also hold a round lot of stock for 11.01 and a March 24 put acquired for 0.65. No further action is required. ______ UPDATE: We bought the call for 0.05, the low of the day, when it traded at that price on the opening. Imputing the 0.55-cent gain to the cost of the put we still hold lowers its cost basis to 0.10. We also now have a vertical call spread, Feb 27- Feb 29, – that amounts to a free lottery ticket with a $200 prize if Akamai should soar between now and February 19. _______ FURTHER UPDATE: The spread went out worthless, and so we now hold a round lot of stock with an imputed cost basis of 11.11.
AKAM’s sharp rally has put our goal of shorting February 21 puts for 0.35 out of reach, so cancel the order for now. We continue to hold a round lot with a cost basis of 11.01, offset slightly by a February 24 put acquired for 0.35, and a February 29 call shorted for 0.60.
The short I advised from 27.15 has proven timely, since it helped us protect our gains from within 13 cents of a peak that marked the beginning of a so-far 10% correction. At the top, we purchased a February 24 put for 0.35 and shorted a February 29 call for 0.60. For each round lot of stock still held (with a cost basis of 11.01!), I’d further advised offering a February 21 put (UMUNT) short for 0.35, good through last Friday. Let’s extend the order for another week, since AKAM’s selloff is steepening so that we now have a good chance of being filled. My downside target is 23.89, and I’ll recommend six cents above it for 100 shares, no stop-loss, regardless of whether the put order fills.
The long-term target at 27.15 that we used to protect our gains on stock acquired for 11.01 seems to have caught a major top very precisely. We bought a put and shorted a call just as the stock was apexing, and now we can try to further enhance the risk:reward on the option position. We’re long a Feb 24 put for 0.35 and short a February 29 call for 0.60, and I’ll recommend offering a February 21 put (UMUNT) short for 0.35, good through Friday. (Note: If you hold the position in bigger size, you should short as many options as you are long Feb 24 puts.)
Against the round lot of stock we hold for 11.01, we shorted a February 29 call yesterday for 0.60 and bought a Feb 24 put for 0.35. The price we received for the call was less than I’d anticipated, but because it’s a covered write, and because have such a large profit built into the position already, the extra dime we did not receive won’t make much difference. Now, I’d suggest working the P&L numbers with the stock at various prices on February 19, when the options expire. As you will see, our gain on the position will increase under a wide variety of circumstances, and if Akamai falls apart we’ll be well protected.
Weeks have passed since I first suggested shorting February 29 calls (UMUBK) for around 0.95 against stock we already own. The calls now look like they’d be a good sale for around 0.70-0.75. The price target on the underlying is still 27.15, so we’re close enough to do the trade. You should also buy a February 24 put (UMUNZ) for each round lot of stock you hold. Try using a day-order of 0.35 to accomplish this. I expect Akamai to make a tradable top at or near the target, but whatever the stock does, we have a built in profit of around $1600 per round lot at these level, since our cost basis is $11.01.
AKAM is closing on a 27.15 target flagged here several months ago. We hold a round lot with an adjusted cost basis of 11.01, giving us a paper profit of more than $1500 at current prices. I’d suggested shorting an in-the-money call when the stock reached the target, but we’ll probably do better selling something closer-to-the-money, since that will allow us to capture the “juice” of implied volatilities now in the mid-40s. Accordingly, for each hundred shares of stock you own, short a February 29 call (UMUAK) at-the-market when AKAM gets within 10 cents of the target. A price of about 0.95 would be a pretty decent sale, but don’t try to squeeze another nickel out of this gambit if there’s a chance it will cause you to miss the trade. At the same time, buy one Feb 24 put (UMUNZ) for around 0.50.
We hold a round lot with an effective cost basis of 11.01 and a long-term rally target of 27.15. As detailed here earlier, I am recommending that you short a December 23 call against the stock if and when the target is reached, and that you also buy a January 23 put at that time.
A Hidden Pivot at 27.15 looks like it could be the end of the line for the bull run begun from 12.29 in January. We hold 100 shares with an adjusted cost basis of 11.01. If and when the stock reaches 27.03, I’ll recommend shorting a December 23 call against it (in covered-write fashion) and buying a January 23 put as a kicker.
