What CyberArk Options Are Telling Us Ahead of Earnings

Short sellers have more than doubled their bets against the cybersecurity stock in recent weeks

Feb 14, 2018 at 11:40 AM
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Ahead of the opening bell this Thursday, Feb. 15, Israel-based CyberArk Software Ltd (NASDAQ:CYBR) is slated to report its fourth-quarter earnings. Options traders are banking on CYBR to make a massive move on the charts in the wake of its quarterly results -- currently, the equity's options are pricing in a 13.8% post-report move, according to Trade-Alert, nearly doubling CYBR's average one-day post-earnings price swing of 7.1% over the past eight quarters.

Based on the stock's current perch of $44.94, a 13.6% rally would put the shares around $51.05, while a drop of that magnitude would leave CYBR trading near $38.82. In either case, this type of dramatic share price move would force the cybersecurity stock out of a seven-month trading range between the $48 and $39 levels, with the upper rail reinforced by the security's slowly descending 300-day moving average; this trendline easily rejected a late-November rally attempt. So while the equity has recently muscled above its similarly troublesome 160-day moving average, the 300-day could easily stifle any post-earnings rally attempts.

cybr daily one-year chart

Short sellers have responded eagerly to CyberArk stock's bleak year-over-year slump of 16.3%, with the number of CYBR shares sold short ballooning by more than 125% over the past two reporting periods. With a short interest ratio of 4.8 days to cover, this raises the possibility of a post-earnings short-squeeze rally in the event of an upside surprise, as weaker bearish hands hit the exits -- but given the equity's long-term downtrend and the presence of looming resistance, more aggressive shorts are likely to view any post-event pop as an opportunity to ramp up their bets against the stock.

And the options market appears to be tipping the scales toward a bearish post-earnings move from CYBR. The equity's 30-day implied volatility skew checks in at 12%, according to Trade-Alert, which registers in the 86th percentile of its annual range. In other words, short-term CyberArk puts have priced in higher volatility expectations relative to their call counterparts only 14% of the time in the last year.

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