Options Corner: Why Low-Key Infrastructure Play Akamai Technologies Might Surprise You

Although the innovation ecosystem has started to look interesting again as evidenced by the recent performance of the Nasdaq Composite index, Akamai Technologies Inc AKAM has been a conspicuous laggard. Since the start of the year, the content delivery network (CDN) specialist — which also offers robust cybersecurity and edge computing services — has dropped nearly 17%. Nevertheless, AKAM stock could be an intriguing candidate for a sentiment reversal.

Fundamentally, Akamai plays a vital role in how people and enterprises consume the internet — it's just that the essential work occurs behind the scenes. Using a geographically distributed network of proxy servers, CDNs help speed up websites by storing cached content near end-users. This capability is especially critical for companies with content-streaming arms, such as Apple Inc AAPL, Alphabet Inc GOOGGOOGL and Netflix Inc NFLX.

Further, Akamai plays an important (albeit indirect) role in artificial intelligence. Today, many AI models — especially those involving voice assistants, fraud detection services and personalized ads — require low latency or minimal lag in data transmission between source and destination. Thanks to Akamai's edge computing infrastructure, AI workloads can run closer to the user, reducing delay and bandwidth strain.

Finally, Akamai offers a strong cybersecurity suite, including advanced protocols such as zero-trust security. Given the importance of digital protection, it's arguably one of the key line items that companies can't afford to skimp out on.

Unfortunately, recent financial performances reflect revenue pressures, which points to a highly competitive environment. Further, while Akamai is making progress in cybersecurity, that arena is also crowded. Essentially, the company needs to prove that its edge computing services can scale profitably; hence, the volatility in AKAM stock.

Applying Game Theory To Formulate A Strategy In AKAM Stock

At the heart of every market-related discussion is a game of probabilities. People are looking to see whether their investment idea of choice will likely move higher or not; otherwise, why bother having the discussion in the first place? But merely listing out the pros and cons of a security won't empirically get us any closer to the answer.

To better understand AKAM stock as a trading prospect, it's helpful to consider this thought experiment. Imagine flipping a fair coin 100 times every business day. What you flip on Monday will have no bearing on what you flip on Tuesday and so forth. That's simply because coin tosses are random events.

Now imagine that the stock market is also random. If so, we could look at various intervals in the past and the long-side success ratio for each session in the interval would be about the same: 50%. That's not what we see at all.

By converting the price action of AKAM stock into market breadth — or sequences of accumulative and distributive sessions — we can filter out the messy noise of price discovery and get down to root demand sentiments. Further, segregating market breadth into 10-week sequences (using data from January 2019 onward) reveals the following profile:

Ticker	L10 Category	Sample Size	Up Probability	Baseline Probability	Delta	Median Return if Up
AKAM	2-8-D	1	100.00%	58.82%	41.18%	0.33%
AKAM	3-7-D	11	72.73%	58.82%	13.91%	1.47%
AKAM	3-7-U	1	100.00%	58.82%	41.18%	0.37%
AKAM	4-6-D	34	61.76%	58.82%	2.94%	2.65%
AKAM	4-6-U	4	50.00%	58.82%	-8.82%	3.37%
AKAM	5-5-D	47	53.19%	58.82%	-5.63%	1.94%
AKAM	5-5-U	22	72.73%	58.82%	13.91%	1.69%
AKAM	6-4-D	37	56.76%	58.82%	-2.06%	2.03%
AKAM	6-4-U	53	54.72%	58.82%	-4.10%	1.80%
AKAM	7-3-D	12	50.00%	58.82%	-8.82%	3.35%
AKAM	7-3-U	52	53.85%	58.82%	-4.97%	1.82%
AKAM	8-2-D	3	100.00%	58.82%	41.18%	7.32%
AKAM	8-2-U	38	68.42%	58.82%	9.60%	1.91%
AKAM	9-1-U	5	20.00%	58.82%	-38.82%	2.14%

In the trailing two months, AKAM stock is printing a "4-6-D" sequence: four up weeks, six down weeks, with a negative trajectory across the 10-week period. This is a relatively uncommon sequence, having materialized 34 times. However, the biggest takeaway is that in 61.76% of cases, the following week's price action results in upside, with a median return of 2.65%.

Based on the current market price, the statistical response to the 4-6-D sequence suggests that AKAM stock could hit $81.87, perhaps push toward $82 given its psychological lull.

Broadly, what makes the above framework appealing is the non-randomness of the market. If AKAM stock traded randomly, then all the sequences should roughly coalesce around the 50% probability mark. They don't. Instead, some sequences are clearly favorable for the bullish speculator.

Rather than trying to trade AKAM stock based on curated opinions, I believe it's better to use game theory; that is, make a move when the odds favor you.

Two Trades To Consider

Based on the market intelligence above, the nearest-term strategy to consider is the 79/81 bull call spread expiring July 18. This transaction involves buying the $79 call and simultaneously selling the $81 call, for a net debit paid of $110 (the most that can be lost in the trade). Should AKAM stock rise through the short strike price ($81) at expiration, the maximum reward is $90, a nearly 82% payout.

If you want to ramp up the reward, you could opt for the 80/82 bull spread also expiring next Friday. While this trade features a maximum payout of roughly 111%, it also requires AKAM stock to move that much further by expiration.

The other trade to consider is the 75/85 bull call spread expiring Aug. 15. This trade provides five weeks for AKAM stock to rise to the required profitability threshold, with the breakeven price presently at $80.25. Here, the net debit required is $525 with a maximum payout of 90.48%.

The opinions and views expressed in this content are those of the individual author and do not necessarily reflect the views of Benzinga. Benzinga is not responsible for the accuracy or reliability of any information provided herein. This content is for informational purposes only and should not be misconstrued as investment advice or a recommendation to buy or sell any security. Readers are asked not to rely on the opinions or information herein, and encouraged to do their own due diligence before making investing decisions.

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