Yesterday, I posted a couple of swing trades and I wanted to give some added color on the Akamai Technologies short and why I think this trade has a high probability of success from a technical standpoint.
The chart below is a screenshot of a factor model I built to identify technical patterns. In it, AKAM is highlighted and there are a few things that stand out.
There are also a couple of other factors that aren't apparent by looking at this chart. First off, the cloud computing and storage sector in general has been getting hit hard of late... see QCOM, SNDK, STX, WDC. Second, AKAM has an earnings date scheduled for Tuesday, the 28th of July... a week after I proposed this trade. Anytime you can find a catalyst event for a trade you should grab it (if you can).
The Hedge...
In an ill-fated attempt to boast of his ball handling skills, former NBA player, Charles Shackleford once infamously declared "I can go right, I can go left, I'm amphibious." While I'm not sure how well options perform in maritime environments, I know they work great in the land of CYA (Covering Your Ass...ets).
By purchasing a call option with a September expiration and a strike price of $77.5 for $1.44, we capture the nominal purchasing power of more than 15 times what we spend on protection. This leverage, when applied in proper proportions to the underlying position, enables the trade to make money going to the left or right... it's 'amphibious' as our friend Chuck would say.
AKAM was trading at $72.78 at the time of this trade. Using a ratio of -40 shares of AKAM for every call option purchased, the trade will breakeven at $69.18 on the downside and $83.05 on the upside at the expiration of the contract.
Of course only time will tell whether or not this trade is successful, but hindsight and replays are only good for sports highlights... looking forward, it lines up nicely.
The chart below is a screenshot of a factor model I built to identify technical patterns. In it, AKAM is highlighted and there are a few things that stand out.
- The trend is your friend -- the pattern is in a medium term downtrend as represented by the normalized 50 day moving trend which is -0.084 (for the sake of comparability, volatility and trend calculations are normalized).
- Buy on the dips and sell on the pullbacks -- The stock has recently reverted back up to its 50 day moving average, has bounced off of the resistance level and (for the time being) is trading below the declining measure.
- The variances all line up -- The stock has a miniscule variance to its key resistance level taking a short term reversion out of play. The moving average variance is nice and negative... the moving average variance (MAVar) is basically the relative difference between the 20 and 50 day moving averages.... negative MAVars are conducive to falling prices and vice versa.
There are also a couple of other factors that aren't apparent by looking at this chart. First off, the cloud computing and storage sector in general has been getting hit hard of late... see QCOM, SNDK, STX, WDC. Second, AKAM has an earnings date scheduled for Tuesday, the 28th of July... a week after I proposed this trade. Anytime you can find a catalyst event for a trade you should grab it (if you can).
The Hedge...
In an ill-fated attempt to boast of his ball handling skills, former NBA player, Charles Shackleford once infamously declared "I can go right, I can go left, I'm amphibious." While I'm not sure how well options perform in maritime environments, I know they work great in the land of CYA (Covering Your Ass...ets).
By purchasing a call option with a September expiration and a strike price of $77.5 for $1.44, we capture the nominal purchasing power of more than 15 times what we spend on protection. This leverage, when applied in proper proportions to the underlying position, enables the trade to make money going to the left or right... it's 'amphibious' as our friend Chuck would say.
AKAM was trading at $72.78 at the time of this trade. Using a ratio of -40 shares of AKAM for every call option purchased, the trade will breakeven at $69.18 on the downside and $83.05 on the upside at the expiration of the contract.
Of course only time will tell whether or not this trade is successful, but hindsight and replays are only good for sports highlights... looking forward, it lines up nicely.
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