This Is Gambling

Back in October of 2010, Dan Nathan proposed (on CNBC Options Action, here) a way to play Akami (AKAM) stock using the strangle. AKAM is a tech stock and Akami provides services for accelerating and improving the delivery of Internet content. It seems to be a very popular stock among CNBC commentators. From the graph above with 98% bootstrap confidence intervals, it doesn't seem to have done much after the dot-com bubble.

What Dan Nathan was proposing was to buy the November 2010 50-strike call and the November 44-strike put. The strangle would be profitable if Akami traded above $53.10 or below $40.95 by the November expiration. What do the Random Stock Walker models think about AKAM and the strangle?
The models show that AKAM is a random walk. The business-as-usual (BAU) model was only slightly different from the random walk so it's forecast is displayed above. For the BAU, the November bootstrap prediction interval was (47.14, AKAM=54.13, 61.13), showing that Mr. Nathan's 50-call strike was just below the stock's expected value giving him some probability of success.

The AKAM strangle was discussed again tonight on Options Action because AKAM took a nose dive on Thursday, dropping below 42, which is still within he February 2011 prediction interval (45.10, AKAM=48.44, 51.78)--notice the downward trend . What to do? If I heard correctly, Mr. Nathan wants to stick with the trade, but it really doesn't matter. Since AKAM is a random walk, he's really just gambling. The stock could go anywhere. Maybe he'll be lucky.