In a previous article related to Akamai (NASDAQ:AKAM), the leading content delivery network company, a bull-put credit spread was considered. A bull-put credit spread may be entered by selling one put option and purchasing a second put option further out-of-the-money with the goal of the options expiring worthless and the initial net credit retained as a profit.
As explained in the previous article, the selling and subsequent price drop for the company's stock related to uncertainty with respect to a new CEO was deemed overdone. In the article, a management point of $32.50 was suggested as a point for which the position should be closed or rolled. Since the price of Akamai's stock has breached the $32.50 management point and is currently trading around $32.30 ( shown below), management of the position will be examined.
The initial 2012 May 28/31 bull-put spread was entered for a credit of $0.25. To close the position today would result in a loss, as the position can be closed for a net debit of $0.35 as calculated by PowerOptions' tools and shown below:
Closing the position would result in a loss of -$0.10 ($0.25-$0.35) per share. The prospects for Akamai are still considered bullish, with the selling and price drop still considered overdone, so examination for rolling the position will be given.
Using PowerOptions' tools to examine potential roll candidates for June expiration revealed:
The 2012 Jun 27/30 bull-put spread can be entered for a credit of $0.49. After closing the initial position for $0.35, the roll to the new position can be executed for a net credit of $0.14 ($0.49-$0.35), so by rolling to the new position an additional potential return of 5.1% can be realized thereby increasing the total potential return, including the initial position, to 14.2% (104% annualized). A profit/loss graph for one contract of the position, including the initial position is shown below:
A management point is set for the new position of $32.20. If the price of Akamai's stock drops below $32.20, then consideration for management of the position for an exit or roll should be given.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.