Palo Alto Options Volume Soar as Investors Weigh How Long Bleeding Will Last

While earnings and revenue for the fiscal third quarter ended April 30 exceeded analysts' estimates, these weren't enough to reverse the decline in the stock seen before the release of financial results. Instead, shares extended their slide, slumping as much as 6.8%, after the company provided guidance that failed to impress Wall Street. Although the stock has pared the decline, it's still down 3% at $313.97 at 12:40 p.m. in New York Tuesday.

On Monday, Palo Alto forecast that revenue in the fiscal fourth quarter ending in July will rise to $2.15 billion to $2.17 billion, in line with the average of analysts' estimates compiled by Capital IQ. That's a disappointment to Wall Street, after investors were stung last quarter, when the cyber security company cut its full year outlook.

Guggenheim analyst John DiFucci had expected the company to "return to a beat-and-raise cadence" MarketWatch reported. Piper Sandler's Rob Owens, on the other hand, cited persistent risks to the company's strategy shift that's driving elevated uncertainty over the near-term, according to the report. He has a neutral rating on the stock and a price target of $300, below its current price of $313.66.

That uncertainty was also playing out Palo Alto's options market, driving the volatility and a surge in volume. As of 12:26 p.m. in New York Tuesday, about 6,520 call options that give the holder the right to buy the stock at $310 by the end of this week changed hands. That's more than six times the open interest.

The price of the $310 call options fell as much as 87% before paring the decline to 67% as holders rethink whether the stock could stay above that level before they expire in three days. Currently, the probability that the option would be exercised was at 63.44%.

While eight of the 15 technical indicators tracked by moomoo are flagging a bearish trend, the meter has turned neutral over the past 60 minutes.