Michael Michaud's  Instablog

Click Here for a Free Trial of the "Profit Rockets" Stock Picks Service

Akamai - [ah kah mai'] Hawaiian Word - Smart, clever, wise, intelligent. You may take it as a compliment if someone tells you that you are akamai.

The summer of 2013 is expected to be anything but dull. Tensions among investors and market volatility are high as we weigh the effects of QE tapering amidst a world with struggling economies.

Stocks that have global discretionary exposure or unjustifiably high valuations have gotten hit the hardest over the last month or so.

If economies do weaken and consumers slow their spending habits once again, there are a few areas that could still see strong growth. In fact, today's bull of the day might actually benefit from consumers staying home, surfing the web or engaging in more online content.

Think about them as a quasi-defensive growth company; sure they have competition, but they are one of the best at what they do and it seems that investors may be gearing up for the company to make another leg higher as short interest dropped dramatically as of late.

The most recent short interest data has been released by the Nasdaq for the 05/31/2013 settlement date, showed a 6,608,451 share decrease in total short interest from 10,971,242 or 37.59% since 05/15/2013. This shift happened even as the stock price skyrocketed.

Who are they?

Akamai (AKAM) is more than just a "cloud" company; the company provides the leading cloud platform for helping enterprises provide secure, high-performing user experiences on any device, anywhere. The proliferation of mobile devices from the likes of Apple, Samsung, HTC, Google and more all will add to the need for Akamai's services.

If you've ever shopped online, downloaded music, watched a web video or connected to work remotely, you've probably used Akamai's cloud platform. The company's promise is to ensure the best online experience on any device, anywhere.

Akamai delivers roughly 20% of ALL web traffic globally.

Akamai helps enterprises accelerate innovation in the hyper-connected world by removing the complexities of technology and handling all the "leg work" in getting content from the company to the consumer and beyond.

Their "Intelligent Platform" reaches globally and delivers locally, providing customers with unmatched reliability, security and visibility into their online business. This platform comprises more than 95,000 servers located across nearly 1,000 networks in 70 countries worldwide and delivers hundreds of billions of internet interactions daily.

The company also tracks and defends against "attack traffic" on the internet, helping us all get the safest bandwidth possible. Global internet traffic is not only growing in raw content and users, but the speed at which we access that content is also rising rapidly.

Recent Results

Most Zack's Rank #1 stocks have recently experience very positive analyst momentum and Akamai is no exception.

After the company delivered a 24% beat last quarter (42cents versus the Zacks Consensus for 34 cents), there have been a slew of positive analyst revisions. The Zacks Consensus for the current and next quarters as well as FY2013 and FY 2014 are all higher than they were just 2 months ago, with none moving their estimates lower.

Akamai is expected to report Q2 results on July 24th and given their Zacks Rank coupled with an earnings ESP of 8.11% in the current quarter, there is a very good chance they will beat the current Zacks Consensus for 37 cents. ESPs are also positive for the future, which is a good sign for guidance.

AKAM has beat the Zacks Consensus earnings estimates 4 periods in a row, exceeding expectations by an average of 13.7%.

The Charts

Since gapping almost 17% above the 200 day moving average on their last earnings report, the stock added another 15%, making a new 52 week high of 48.47 over the last month.

(click to enlarge)

Recently, shares have come down to their post gap price around the $42.50 level, which is just above the 50 day moving average of $42.34.

Shares are in an odd area here; I'd like to see them trading above the $43.07 area, which coincides with a key Fibonacci level. If the stock breaks down here along with the broad market, look for strong support around $39.50 and even more at the 200 day moving average of $37.81.

The reality is that the intermediate bullish trend is intact, and a buy around these levels wouldn't be catastrophic, but Akamai's forward P/E of 26.5 may put it on the temporary chopping block if the broad market corrects.

Look for an initial upside target of $47.25, with another 5% breakout if shares eclipse the 52 week high.

Akamai is my favorite pick in the cloud space at the moment; Rackspace (RAX), a Zacks Rank #5 Strong Sell, doesn't look nearly as attractive and trades at double the multiple and while Hewlett Packard (HPQ) (Zacks Rank #3 Hold) is trying to move into the space, they may have a long road ahead and are much less agile and "plugged in" than Akamai.

By Zacks Investment Research

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AKAM over the next 72 hours.

Click Here to Review "Instant Income" Options 3 Months Of Trade Results

5 Careful Ways to Win with Options

Did you know that in spite of all the volatility in the markets as of late (or maybe partly because of it), the growth in options trading has continued to rise?

In fact, for the last seven years in a row, the volume of options contracts traded has steadily increased with last year setting an all-time high.

More and more people are now including options in their investments as a smart way to get ahead of the market.

And it's easy to see why.

Advantages

Most people know that options afford the investor many advantages, not the least of which is a guaranteed limited risk when buying calls and puts.

And you can also get a great deal of leverage while using only a fraction of the money you would normally have to put up to get into the actual stocks themselves.

But those are just some of the advantages of options.

Flexibility

The real advantage with options is the opportunity to make money if a stock goes up, down and, depending on your strategy, even sideways.

In fact, with some strategies you can even be wrong on the underlying stock's direction and still profit. Simply identifying a range is all you need to win.

This flexibility gives the options investor the opportunity to profit in virtually any market condition - even when you're unsure what the market will do.

Easier Than You Think

Even though the popularity of options has soared, they are still not as well known or understood as stocks.

But it's all a lot easier than you might think.

1.) Are You Bullish?

If you believe the price of a stock will go up, you can buy a call option on it and make money as it goes higher.

The option buyer gets a guaranteed limited risk, which is limited to the purchase price (or premium) plus any applicable commissions and fees.

Essentially, at expiration, your profit is the difference between where the stock price is and your option's strike price.

Example:

Let's say a stock was trading at $50.

You buy a $45 call option with a premium of $6.50, i.e., $650.

At expiration, the stock has shot up to $65.

Your $45 call would now be $20 in-the-money, making it worth $2,000.

So the option is worth $2,000.

You paid $650.

That's a gain of $1,350.

All on just a $650 investment.

Worst case scenario: if the stock at expiration closed below your option's strike price of $45, you could lose the entire $650. But even if the price went down to $0, you could never lose any more than that. Whereas with a stock, you'd be on the hook for it all.

2.) Are You Bearish?

If you believe the price of a stock will go down, you can buy a put option on it and make money as the price goes lower.

Once again, the option buyer gets a guaranteed limited risk, which is limited to the purchase price (or premium) plus any applicable commissions and fees.

At expiration, your profit is the difference between where the stock price is and your option's strike price.

Example:

Let's say a stock was trading at $60.

You buy a $65 put option with a premium of $7.00, i.e., $700.

At expiration, the stock has dropped to $40.

Your $65 put would now be $25 in-the-money, making it worth $2,500.

So the option is worth $2,500.

You paid $700.

That's a gain of $1,800.

All on just a $700 investment.

Worst case scenario: if the stock at expiration closed above your strike price of $65, you could lose what you paid for the option. But even if the stock went against you even more, you could never lose any more than that.

3.) Expecting a Big Move, But Not Sure Which Way?

A straddle is a way to make money when you're not sure which way the market will go, but you believe something big will happen in either direction.

With a straddle, you're buying both a call and a put at the same time, with the same strike price, and the same expiration date.

For example, let's say it's earnings season and you expect a big move to occur, either up or down, based on whether the company reports a positive surprise or a negative surprise. Or maybe the charts are suggesting a big breakout could be getting ready to take place in one direction or another.

With this strategy you can make money in either direction without having to worry about whether you guessed correctly or not.

Example:

Let's say a stock was trading at $100 a few days before their earnings announcement.

You buy the front month $100 strike call for $150. And you buy the front month $100 strike put also for $150.

That's a cost of $300 (not including transactions costs) to put on the trade.

Now let's say the stock shoots up $15 as a result of a positive earnings surprise.

The call option is now worth $1,500.

The put option is worth $0.

You paid $300.

That's a profit of $1,200.

All on just a $300 investment.

The best part with this strategy is if the stock had posted a negative surprise and it dropped -$15 instead, you would have been just as profitable. The only difference is that the put would have been the profitable side and the call would have been the loser. (But so what, because you didn't care which way it went, you just expected something big to happen in one direction or the other.)

Worst case scenario: at expiration, if nothing big ever happens, you would have lost the entire $300.

4.) Expecting a Stock to Fall (or at Least Not Go Much Higher)?

Writing calls can be profitable in mildly bullish markets, sideways markets and bearish markets.

Buying a call option gives you the right but not the obligation to purchase 100 shares of a stock at a certain price within a certain period of time. The price you pay for the option, let's say $500 for example, is called the premium.

If you write an option, you're collecting that premium. Someone else is buying the right to own 100 shares of a stock at a certain price within a certain period of time. And that premium is paid to you.

If that stock goes down and the option expires worthless, the buyer of the option loses -$500, but the writer of the option makes $500.

Example:

Let's say a stock was at $70.

For whatever reason, you determined the stock would go down or at least not go much higher.

Let's also say that you wrote an $80 call for a premium of $5.00, i.e., $500. That means your account would be credited $500.

If at expiration, the stock is at or below the strike price of $80, you'd keep the entire premium of $500.

Even though the stock didn't go down like you thought, but instead went even higher -- $10 higher in this example -- as long as it stayed below your strike price of $80 by expiration, you'd still profit by the full $500 you collected.

Thought the stock was going down.

Instead it went up.

Still made money: $500.

Pretty exciting.

In fact, at expiration, the stock could literally be above the strike price of $80, plus an amount commensurate with what the writer collected for the premium, and still not lose any money. (In this case, the stock could literally be at $85 at expiration and you still wouldn't have lost anything.)

Worst case scenario: if the stock went up past the strike price plus the amount collected in premium, then you'd start losing on the trade. And for every $1 above that level, you'd lose $100.

But if the stock looks like it's breaking out above your price level, you can simply buy that option back to limit your loss, or depending on where you are in the trade, lock in a partial gain.

5.) Think a Stock Will Go Up, But You'd Like To Buy It at a Lower Price, Yet Still Make Money Even If You Never Get In?

Writing put options is a great way to make money if the market goes up, sideways and even down (to a limited extent).

This is also a way to potentially get into a stock that you'd like to own at a much cheaper price, and get paid while you wait, even if you never get the stock.

As you know, if you buy a put option, you're buying the right to sell a stock at a certain price within a certain period of time. The buyer pays a premium for this right. He has a limited risk - which is limited to the price he paid for the option.

However, the writer is taking the other side. He has to buy the stock if it's put to him at a certain price within a certain period of time. And for this 'risk', the writer collects a premium.

Example:

Let's say a stock was at $50.

And you decided to write a $40 put option, collecting a premium of $4.00, i.e., $400. (Not to mention, looking forward to potentially getting a chance to own that stock a full $10 cheaper than where it's trading at.)

If at expiration, the stock is trading anywhere above your strike price of $40 or higher, you'd keep the entire premium of $400. You may not have gotten that stock, but you still got paid for your wait.

Thought the stock would go up, but didn't want to buy it at that price.

Wanted it to go down to buy at a lower price.

Never does.

You still made $400.

If at expiration, the stock price is at $40, the buyer of the option could exercise it and you'd now be obligated to buy that stock for $40 a share, which means you've now got that stock at the price you wanted - plus your $400 premium.

Didn't want the stock at $50.

Wished it would go down so you could get it at $40.

Finally does and you get your stock.

Plus $400.

But even if the stock fell to $36 (i.e., down to your strike price plus an amount commensurate with the premium collected -- this would be your breakeven point), you still wouldn't lose anything.

Worst case scenario: the stock would have to fall below $36 to even begin to lose on the trade. And for every $1 below that level, you'd lose $100 due to the stock you now own.

Of course, if you changed your mind, or if you thought the stock could fall below your strike price and even your breakeven point, you could buy the option back at any time, thus cutting your loss or locking in your gain and ending the trade right there, without having to even bother with the stock.

Options give the investor numerous ways to make money in the market. Up, down or sideways, decide to make success your only option.

You can learn more about different types of option strategies by downloading our free options booklet: 3 Smart Ways to Make Money with Options (Two of Which You Probably Never Heard About).

By Zacks Investment Research

June 12, 2013 - The Science of Making Money in Stocks by By Zacks Investment Research

Why do some people succeed spectacularly in the market while others fail?

The market is the same for one person as it is the next.

So why the big difference in performance between one person and another?

It all boils down two things:

1) Knowing what works, and

2) Doing what works

While the stock market isn't a perfect science, the fact remains that if you concentrate on what works and stop doing what doesn't, you will most surely succeed in the market.

Knowledge Is Power

We've all heard the old adage: 'knowledge is power'.

It's a great saying because it's true.

And that saying couldn't be truer than when it comes to investing.

Take a look at your last big loser for example. After analyzing what went wrong, you soon discover some piece of information that - 'had you known that, you never would have gotten into it in the first place'.

I'm not talking about things that are unknowable, like surprise announcements that can catch even the most professional of professionals off guard. I'm talking about things that you could have known about or should have known about before you got in.

This is part of 'knowing what works'.

Did you know that roughly half of a stock's price movement can be attributed to the group that it's in?

Did you also know that oftentimes a mediocre stock in a top performing group will outperform a 'great' stock in a poor performing group?

And did you know that the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1?

And did you also know that the top 10% of industries outperformed the most?

Was your last loser in one of the top industries or in one of the bottom industries?

If it was in one of the bottom industries, you should have known to not take a chance on something with a reduced probability of success.

That's the 'doing what works' part.(And not doing what doesn't work.)

That's not to say that stocks in crummy industries won't go up -- they do. And that's not to say that stocks in good industries won't go down -- because they do too.

But more stocks go up in the top industries, and more stocks go down in the bottom industries.

And that's part of the science of making money in stocks.

If you follow a set of proven profitable rules, you'll have a higher probability of succeeding.

Know What Works

Did you know that stocks with 'just' double-digit growth rates typically outperform stocks with triple-digit growth rates?

Did you also know that stocks with crazy high growth rates test almost as poorly as those with the lowest growth rates?

Did your last loser have a spectacular growth rate?

If so, and it got crushed, would you have picked it if you knew that stocks with the highest growth rates have spotty track records?

Once again, this is the 'know what works' part.

It seems logical to think that the companies with the highest growth rates would do the best. But it doesn't always turn out to be the case.

One explanation for this is that sky high growth rates are unsustainable. And the moment a more normal (albeit still good) growth rate emerges, the stock gets a dose of reality as well.

Instead, I have found that comparing a stock to the median growth rate for its industry is the best way to find solid outperformers with a lesser chance to disappoint.

Do What Works

Remember, you need to 'know what works' and also 'do what works'. That's the science of making money in stocks. And quite frankly, the science of success in everything.

Do you know how well your stock picking strategies have performed?

Whether good or bad - do you know why?

Do you know if your favorite item to look for is helping you or hurting you?

What will you do differently to make this your most successful year yet?

Get help with the answers to these questions and more. And discover what works and what doesn't before your next trade.

Click Here for a Free Trial of Zacks Investment Research

Van Tharp Institute
Investing Trading Home Study Programs & Live Seminars Workshops
Dedicated to cutting edge, high quality professional educational investing trading programs for traders and investors providing a road map for financial freedom. The finest investing trading education in the financial universe. Dr Van Tharp is one of the orginal Market Wizards, and referred to as the Traders Coach.