Shares of cybersecurity company Palo Alto Networks (PANW) are down about 9 percent over the past year following a strong rally in the past few weeks. One trader sees further downside for shares ahead.
That’s based on the January 2025 $135 puts. With 708 days until expiration, 10,502 contracts traded compared to a prior open interest of 322, for a 33-fold rise in volume on the trade. The buyer of the puts paid $15.10 to make the bearish bet.
Palo Alto shares recently traded for about $165, so the stock would need to drop about $30, or about 20 percent, for the option to move in-the-money. With a 52-week low of about $132, such a move in the next two years looks possible.
While the company has seen revenues rise 25 percent to nearly $6 billion over the last year, the firm is not yet profitable, with an estimated value of 49 times forward earnings.
Action to take: Shares have had a strong rally in the past few weeks, but could be prone to a pullback as tech stocks tend to get hit hard on market drops. Investors interested in the stock should wait for a re-test of the prior low before buying in.
For traders, the puts are well priced, especially as they have nearly two years to play out. Traders can likely leverage a downturn into mid-double-digit gains.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.