Fears in Palo Alto Networks Inc Stock Are Overblown — Go Long
We now live in a world that depends on technology more than ever. And the adoption of the cloud has been increasing at an exponential rate, so this is a trend that won’t quit any time soon. With that comes the need for cyber security. Palo Alto Networks Inc (NYSE:PANW) is an early entrant into the field, so it has the setup to prosper for years to come.
Yesterday the stock sold off hard on the earnings report but that was from an all time high level. Once again, investors were scared out by a less than enthusiastic forward guidance. But a management team that is being cautious near all time high levels and while the globe is in danger of going into a tariff war is a responsible team in my book.
Long term, I bet this PANW stock will continue its upward trajectory. These periodic dips are normal. Momentum stocks like this are scary for most investors to trade. On the way up, they perpetually look like they are due for a pullback. When the drops happen they seem like they are going into an abyss. Either way the entry point into them is scary.
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
So for that I use PANW options. There I can chose entry points that leave plenty of room for error. This way I don’t have to be surgical with my timing. Here I merely need to find proven support zone and sell risk against to generate income with no money out of pocket.
Fundamentally PANW is not cheap from the price-to-earnings ratio. But for growth companies, I am more interested in the top line than profits. So this is another reason for using options so that I can ignore the inherent risk in betting on such frothy stocks.
There is a new CEO, and this adds risk which manifests itself in the implied volatility. But this only adds to my potential profit as long as I choose proper levels to place my risk.
Technically, the zone above $190 has been pivotal since 2015. in March of this year, the bulls broke out from it so it’s likely to become my first level of support should this selling persist. Similarly, $170 and $150 per share will be my next two areas of interest.
There are no perfect trades, but my assumptions for the stocks markets in general are constructive. And in this prism I see a decent 2018 for Palo Alto Networks stock.
PANW Stock Trade Ideas
The Bet: Sell the PANW Dec $155 put. This is a bullish trade for which I collect $3 to open. I have a 85% certitude that I will retain maximum gains, but if the price falls below my strike then I own shares. I would then need to manage off my breakeven point of $152.
Selling naked puts carries big risk especially for a stock as frothy as PANW. For those who want to mitigate it, they can sell a spread instead.
The Alternate Bet: Sell the PANW Dec $160/$155 bull put spread where I have the same odds of winning. Then the spread would yield 12% on risk.
Click here for more my market thesis and get an ongoing free copy of my weekly newsletters.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on twitter and stocktwits.
More From InvestorPlace
The post Fears in Palo Alto Networks Inc Stock Are Overblown — Go Long appeared first on InvestorPlace.
