Playing It Safe On 3 Cybersecurity Stocks

Hey Traders,

Wow, what a week!

I hope you were able to join us for our two-part series on Short Squeezes. Click here to watch Option Pit’s Director of Education Andrew Giovinazzi and I talk about how to spot a short squeeze early, and three potential trade candidates (one of which I played later that day!).

Then, click here to watch as Option Pit’s Wall Street expert Frank Gregory and hedge fund manager Josh Hawes dig into the details on the roles of big banks and hedge funds, and point out three more surprising short squeeze trades they’re keeping an eye on.

Short squeezes just might be the hottest financial topic of 2021 … they’ve been around for 100 years (yes, really) and they aren’t going away any time soon. Learn how YOU can squeeze profits out of them! 

Speaking of hot topics that aren’t going away any time soon …

Let’s talk about cybersecurity.

Cybersecurity concerns are becoming more and more prevalent, with reports of cybercrimes rising dramatically in recent years, according to complaints received by the Internet Crime Complaint Center.

Chart courtesy Statista

I’m sure you heard all about the Colonial Pipeline hacking back in April … and there’ve been dozens of other ransomware attacks this year besides that! Computer manufacturer Acer, the NBA, JBS Meat, Kia Motors … the list goes on.

And, naturally, I think we’re going to see an increased emphasis on cybersecurity as hacking incidents continue to become more and more common.

Here’s three tickers in particular I’m watching as demand for cybersecurity rises.

Follow The CRWD

CrowdStrike (Ticker: CRWD) has been a stock to watch in 2021 – the shares have definitely enjoyed some upside over the last 12 months, and hit an all-time high of $251 earlier this year, before drawing back. More recently, CRWD has seen a steady pattern of higher highs and higher lows forming on the charts.

Chart courtesy StockCharts

CRWD provides cybersecurity services to corporate and government entities, and investigates attacks after the fact to try and determine how to avoid future security breaches. Recently, CRWD acquired cloud-based network monitoring company Humio, which should help it build out its services even more.

Digging into the options side, the top open interest position for standard July expiration is the 250-strike call – suggesting there’s potential support for a run near CRWD’s recent all-time high.

CRWD currently sports a low 30-day at-the-money implied volatility (ATM IV),  indicating options players have been pricing in lower-than-usual volatility expectations over the last 30 days. In other words, options are relatively cheap right now. 

This is stock I’d consider for a long call play if IV stays muted.

Flash In The PANW

Palo Alto Networks (Ticker: PANW) has also been having quite the year, notching an all-time high of $405 earlier in 2021, before drawing back down into the $300’s, where it’s been churning since.

Chart courtesy StockCharts

The cybersecurity firm recently reported better-than-expected earnings, and analysts are already anticipating another outperformance on their next earnings report, with expected sales topping $1.1 billion (that’s more than a 20% increase year-over-year).

So with PANW already enjoying ransomware tailwinds, and cybercrimes continuing to be a growing concern, I think there’s likely more upside in store for the company.

In the pits, PANW’s 30-day ATM IV is in the bottom 3% of its annual range. In other words, PANW options are a relative bargain right now. Demand for calls is outpacing puts nearly 3-to-1 (which is more bullish than usual), and the 390-strike call currently has the most open interest of PANW’s standard expiration July options, suggesting investors are expecting more upside over the next few weeks.

I might consider buying some cheap calls on this name, or potentially a call spread to offset some of the initial outlay.

Out Of The Frying PANW, Into The Fire(Eye)

FireEye (Ticker: FEYE) has also been churning in a channel for much of 2021, but unlike its peers, there appears to be a slight overall downtrend in the shares, exacerbated by the announcement that FEYE will be selling its core business – and the FireEye name – to a private firm, and shifting its focus to cybersecurity incident response.

Chart courtesy StockCharts

The shares gapped lower after the sale was announced, but appear to have mostly recovered in the weeks since.

The FEYE shares are still well below their 2020 high of $25.53, but it should be noted that prior to the 2020 spike, the shares hadn’t seen the $25 mark since late 2015. The increasing demand for cybersecurity should in theory give FEYE continued tailwinds, but with the recent sale announcement, I’m not sure it will be enough to help the shares re-capture this level anytime soon.

FEYE’s 30-day ATM IV is sitting at an annual low, so again, options are relatively cheap right now. Of the standard July expiration options, the 21-strike call has significantly higher open interest than any of the other call options, suggesting there’s at least investor support for FEYE to maintain above $21.

I may cautiously be on the lookout for a good risk/reward call play on this name as well.

Your Only Option,

Mark Sebastian

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.