Bullish Bets Pile Up Ahead of Palo Alto Networks Inc (PANW) Earnings

Palo Alto Networks Inc (PANW) will report earnings tonight

Aug 30, 2016 at 11:45 AM
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Palo Alto Networks Inc (NYSE:PANW) has been known to make some big moves on earnings, which should intrigue options traders ahead of tonight's quarterly report. In general, PANW earnings have been well-received -- with the cybersecurity stock rallying in the aftermath of seven of the previous eight reports. However, last time around, the stock tumbled 12.4% in the session subsequent to earnings.

Right now, the options market is pricing in a single-day, post-earnings move of 13% for PANW, in either direction. From the looks of it, traders foresee the stock resolving to the upside tomorrow. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 1.45 calls for every put in the past 50 days -- a ratio that sits only 6 percentage points from an annual high.

Speaking of which, during the last two weeks, the out-of-the-money September 145 call has seen the biggest increase in open interest -- tacking on nearly 4,000 positions. According to data from the major exchanges, the majority of these bets were bought to open, suggesting traders predict PANW will rally past $145 by front-month expiration, at the close on Friday, Sept. 16.

Options players aren't the only ones with an optimistic outlook. In fact, 88% of analysts rate PANW a "buy" or better, with not a single "sell" opinion to be found -- much like the sentiment landscape on this sector peer. On the other hand, short interest represents almost 8% of the stock's float -- or more than a week of buying activity, at PANW's average volumes. Based on this, it's possible some call buying has come at the hands of short sellers seeking an upside hedge.

That's not to say the shares don't deserve the benefit of the doubt. Since its most recent low in late June, Palo Alto Networks Inc (NYSE:PANW) has been stair-stepping higher -- up 24.5% at $142.73. In fact, the cybersecurity stock is on track for its second straight weekly close above its 32-week moving average -- a trendline that acted as resistance in March and April, but could now be reversing roles to function as support.

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