Akamai Technologies Inc. (NASDAQ: AKAM) stock is declining today after an analyst with Cowen & Co. cut his rating of the stock to "Neutral" from "Outperform" this morning on fears of increased competition. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on AKAM.After hitting a one-year high of $59.69 in February, the stock hit a one-year low of $27.75 in September. This morning, AKAM opened at $36.01. So far today the stock has hit a low of $34.53 and a high of $36.35. As of 11:55, AKAM is trading at $34.68, down $2.42 (-6.5%). The chart for AKAM looks bullish and steady, while S&P gives the stock a negative 2 STARS (out of 5) sell rating.
For a bearish hedged play on this stock, I would consider a February bear-call credit spread above the $45 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 7.5% return in two months as long as AKAM is below $45 at February expiration. Akamai would have to rise by more than 28% before we would start to lose money. Learn more about this type of trade here.
AKAM has not been above $45 since it fell sharply in July, and shown resistance around $40 over the last month. This trade could be protected by resistance the stock might find at its 200 day moving average, which is currently at $41 and falling.
Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in AKAM.
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