CHICAGO, Jan 10 (Reuters) - Shares of Akamai Technologies Inc AKAM.O tumbled as much as 11 percent on Thursday on speculation that portions of the Web content delivery company's contract with Apple Inc AAPL.O may be winding down.
In afternoon trade, about 70,000 options contracts were in play for Akamai, seven times the normal volume, with 1.61 puts trading for every call, according to market research firm Trade Alert.
“The catalyst appears to be rumors that portions of Akamai’s nine-year relationship with Apple may be on the verge of ending,” Rebecca Engmann Darst, equity options analyst at Interactive Brokers Group, said.
Jefferies analyst Katherine Egbert explained, “The concern is that when they expand iTunes to include video rentals, they could bring on a second provider.”
She said Apple might lease space on Google Inc's GOOG.O massive networked computer server infrastructure and "while it would represent only an opportunity cost, it would fuel long-held fears of a Google entry into the CDN (content distribution network) market."
Akamai spokesman Jeff Young said the company has a policy of not commenting on rumors or speculation.
“We’ve had a strong relationship with Apple for close to 10 years, working very closely with them on their online initiatives,” Young said, declining further comment.
An Apple spokesman said the company had no comment.
Option traders sought fresh long positions in January out-of-the-money $25 puts, protecting against a steep drop in Akamai’s share price in the next few days, said Engmann Darst.
The January puts are an indication that traders were seeking protection against a significant drop below Akamai’s current 52-week low over the next week.
January options go off the board January 18.
Akamai’s projected option volatility, which expresses the market’s anticipation of share price movement, rose 17.3 percent early on Thursday to reach 77 percent, the highest reading in at least a year, Engmann Darst said.
“Akamai is recently down on a rumor that the company’s relationship with Apple is going to end,” said Paul Foster, options strategist at Web information site theflyonthewall.com. Its put volume is aggressive, he said.
Investors often turn to equity puts, which allow them to sell shares of the underlying stock at a given price and time, to protect their holdings against downside risk or to bet on further stock erosion.
“Akamai would stand to benefit if Apple announces a new movie rental service for their iTunes at Macworld Expo next Tuesday. Rumors today are that Akamai might not be included. However, several brokerage firms are out defending Akamai this morning,” said William Lefkowitz, options strategist at brokerage firm vFinance Investments in New York.
Shares of Akamai were down $2.12 to $28.60 in afternoon Nasdaq trade.
(Reporting by Doris Frankel, Duncan Martell, Jim Finkle; Editing by Leslie Gevirtz)
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