Option Trade
Palo Alto Networks Inc. (NYSE:PANW) PUTS
Tuesday, August 29, 2017

** OPTION TRADE: Buy the PANW SEPT 15 2017 125.000 PUT at approximately $4.50. Place a pre-determined sell at $9.00.

Note: No protective stop losses added -- but if you wish to do so make it $1.80.

Also Note: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy

by Ian Harvey   

Palo Alto Networks Inc. (NYSE:PANW), a cyber-security company, will report earnings after the market closes on Thursday, August 31, 2017. The consensus earnings estimate is $0.78 per share on revenue of $486.17 million and the Earnings Whisper number is $0.80 per share.

Palo Alto Networks has a history of making big moves after reporting earnings, but unfortunately not always in the same direction. PANW stock rallied 17% the day following the latest release, and it was down 24% after the one prior.

Palo Alto Networks has been unable to form a longer-term uptrend and has actually found itself in a downtrend since the third quarter of 2015. The Nasdaq Composite is up more than 20% in this time period.

Unfortunately, cyber-security stocks as a whole have lagged the market, and Palo Alto Networks is not alone in underperforming.

Palo Alto Networks has a 50 day moving average price of $134.20 and a 200-day moving average price of $127.24. Palo Alto Networks, Inc. has a 12 month low of $107.31 and a 12 month high of $165.69. The stock’s market cap is $11.81 billion.

Influencing Factors

Palo Alto’s chart isn’t overly impressive since the shares gapped up on the last report. Since then, the stock is down 7% and has been struggling to gain any sort of momentum. In fact, it remains 15% below its price prior to the post-earnings weakness two quarters ago.

Fundamentally, management expects to continue growing earnings at an above-average pace. And based on fiscal 2018 estimates; the stock trades at 40 times earnings; with a price/earnings-to-growth ratio of 1.6. The fundamentals are slightly above the market overall, so PANW stock is not a must-buy at this time.

For years, the Street seemed more than content to focus on Palo Alto's skyrocketing top-line growth while brushing aside its mounting losses. Last quarter’s 25% revenue growth to $431.8 million not only beat Palo Alto's own guidance, it handily surpassed pundit's expectations. Despite its stellar sales growth, Palo Alto remains in the red, and what improvement it reported on the profitability front was marginal at best.

Operating expenses once again climbed last quarter, and likely there will be  a further rise when fiscal Q4 results are announced. At $357.2 million, last quarter's operating costs were 18% higher than a year earlier. Cost of revenue, while smaller in total, jumped 30% to $123.7 million. Though Palo Alto's $0.67 per share loss was 8% better than last year's $0.73 a share loss, there is still a long road ahead before its profitable.

Analysts and Hedge Funds Opinions

BidaskClub cut shares of Palo Alto Networks from a sell rating to a strong sell rating in a research report sent to investors recently.

Also, insider trading……

Director James J. Goetz sold 30,000 shares of the business’s stock in a transaction that occurred on Monday, July 10th. The stock was sold at an average price of $137.97, for a total value of $4,139,100.00.

Harvey’s Options Volatility Indicator


Option traders are pricing in a 10.0% move on earnings and the stock has averaged a 13.2% move in recent quarters.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..


** OPTION TRADE: Buy the PANW SEPT 15 2017 125.000 PUT at approximately $4.50. Place a pre-determined sell at $9.00.

Note: No protective stop losses added -- but if you wish to do so make it $1.80.


”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!

Options traders are not successful because they win.

Options traders win because they are successful.