PANW Options Analysis

PANW Options Analysis

(1) Fundamentals:

• The “industry rotation” of the stock market on Friday. Capital flows out of overbought industries (technology, communications services, discrete/cyclical consumption) and into oversold industries (consumer defense, utilities, energy, finance, healthcare). The opposite happened last week. Capital flows out of “healthcare, finance, consumer defense” and flows into industries such as “technology, consumption dispersion, and communications.” Industry rotation will take turns.

• Compared to quarterly performance with First Trust NASDAQ Artificial Intelligence and Robotics ETF (NASDAQ: ROBT), PANW rose +2.18%, while ROBT fell -2.71%, showing the resilience of the AI industry in a revised market.

• Analyst Rating: Strong buy, 76.92% of analysts gave a buy rating.

• Intrinsic Value: $274.67; current price is $293.40 (slightly higher than intrinsic value as of May 1, 2024)

(2) Technology:

• The daily chart is above the 10/20 EMA, showing that the “base and breakthrough” model first showed signs of a breakout, but was rejected, so the strength must be driven by further news catalysts and trading volume.

• The daily chart is inconsistent with the weekly chart (because the weekly chart's VWAP is above the price and the daily chart is below the price), which indicates a clear rejection at the 304 key level.

• Breaking through the downtrend line during the consolidation phase

Abnormal option chain:

Recent developments:

In the latest market close, Palo Alto Networks $Palo Alto Networks (PANW.US) $ reached $293.51, up +0.72% from the previous day. The stock surpassed the S&P 500's daily growth rate of 0.32%. Meanwhile, the Dow Jones Index increased 0.38%, and the tech powerhouse Nasdaq increased 0.35%. Prior to today, the security software maker's stock rose 2.57% over the past month, surpassing the computer and technology sector's 1.9% decline over the same period and the S&P 500's 2% decline. Palo Alto Networks' upcoming earnings report will be of great interest to investors. The company's upcoming earnings per share are expected to be $1.26, up 14.55% from the same period last year. Meanwhile, our latest consensus estimates projected revenue of $19.7 billion, an increase of 14.3% over the same period last year. For the full year, Zacks Consensus predicts earnings of $5.49 per share and revenue of $8 billion, up +23.65% and +16.07%, respectively, compared to the same period last year. Investors may also notice recent changes in Palo Alto Networks' analyst predictions. Recent revisions often reflect the latest recent business trends. As a result, the increase in forecasts indicates that analysts are optimistic about the company's business operations and its profitability.

Options chain:

IVRank: 92.1

Best IV option chain with higher premiums for option sales: iVx 60.5%, 24DTE and 31DTE 58.2% respectively

The 'neutral-bullish' biased options trading idea for $PANW, ranging from small to large according to different capital requirements:

(1) Buy at fair value, or buy when the price falls below $275, or if you already hold stocks, you can add an alternate call option as short-term protection in two situations: a. Call options S300C/B310C transaction summary: i. Opening credit: $3.65 per contract ii. Purchasing power: $660.85 iii. Credit premium (%) = 55.23% (over 20% is a good margin of safety) iv. Alert break-even point: $302.95 b. If the spread of the option is realized within the expiration date, then roll over to the next expiration date and add 'buy call options' to hedge losses, or take losses according to the 'maximum risk per trade' trading plan. c. If the spread of the option remains the same, a premium is charged when the profit is 40-50%, and the increase continues (if held to less than 14DTE) if the stock price rises

(2) Credit spread: Bullish cobwebs receive premiums from higher IV at the expense of higher purchasing power a. Bullish cobweb stand B230P/S250P transaction summary: i. Credit for opening positions: $2.50 per contract ii. Purchasing power: $1809.29 iii. Credit premium (%) = 13.81% (less than 20%, but the Delta is 8, which can balance the margin of safety in terms of probability of success) iv. Alert break-even point: $302.95 b. If the option spread is realized within the expiration date, then roll over to the next expiration date and change it to a 'butterfly spread' to hedge losses, or take losses according to the 'maximum risk per trade' trading plan. c. If the spread of the option remains the same, a premium is charged when the profit is 40-50%, and the increase continues (if held to less than 14DTE) if the stock price rises

(3) Debt spread: Butterfly spread transactions towards the publication of financial reports a. Bullish cobweb stand B230P/S250P transaction summary: i. Position opening claims: $36.50 per contract ii. Purchasing power: $3766.28 iii. Alert break-even point: $242/318 b. If the share price is not below/above the break-even level, reevaluate the trade or bear the loss. c. Profit if the stock price moves in one direction and IV increases to the financial report.