Pre-Earnings Option Bulls Load Up On These 2 Cybersecurity Stocks

Options bulls have been betting on cybersecurity stocks FireEye Inc (NASDAQ:FEYE) and Cyberark Software Ltd (NASDAQ:CYBR) ahead of earnings

by Josh Selway

Published on Feb 10, 2016 at 10:58 AM

Cybersecurity stocks FireEye Inc (NASDAQ:FEYE) and Cyberark Software Ltd (NASDAQ:CYBR) are both scheduled to report earnings after the close tomorrow. Ahead of the events, options data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) indicates traders have been focusing on long calls over long puts. Let's take a closer look at the sentiment backdrops on FEYE and CYBR to get a better idea of how Wall Street is positioned ahead of earnings. 

FEYE's 10-day call/put volume ratio at the ISE, CBOE, and PHLX stands at 4.01, which is higher than 77% of all similar marks from the past year. So not only have option traders bought to open more than four calls for every put, but this pace is also historically elevated. 

To further illustrate the call-bias among speculators ahead of earnings, we can look at FEYE's Schaeffer's put/call open interest ratio (SOIR). At 0.29, this indicator informs us that call open interest among options set to expire within three months more than triples put open interest. Plus, this SOIR is lower than all but 4% of readings from the past 12 months. Said simply, short-term option traders are much more call-focused than what's typically seen. 

To get more specific, the February 14 call has seen the largest increase in open interest of all FEYE options over the past week. Data from the major exchanges confirms substantial buy-to-open activity here. Thus, traders are betting on FEYE to take back the $14 mark by front-month options expiration, at the close on Friday, Feb. 19. 

The bad news is the stock has been on a steady path lower since its annual high of $55.33 in June, shedding 77%, while hitting a 12-month low just yesterday. Today, though, shares of the cybersecurity firm are 6% higher at $12.74, after BTIG raised its opinion to "buy," and lifted its price target to $15.

Ahead of tomorrow's quarterly event, the options market is pricing in a 21% one-day swing for FireEye Inc (NASDAQ:FEYE). Over the past eight quarters, the shares have averaged a more modest 12.4% single-session move.

Looking at CYBR, the stock's 10-day call/put volume ratio across the three main exchanges stands at 6.56, putting it just 5 percentage points from an annual high. Moreover, the stock's SOIR of 0.50 sits in just the 6th percentile of its annual range. Obviously, calls have been the option of choice among speculators.

In terms of open interest changes during the past five sessions, calls account for nine of the 10 most popular strikes. Two options that have seen noteworthy buy-to-open activity of late are the weekly 2/12 39- and 40-strike calls, meaning bulls expect the shares to top these levels by week's end, when the contracts expire.

How the stock performs after tomorrow's earnings report will go a long way in determining whether those calls finish in the money. Currently, the options market is pricing in a 18.6% single-day post-event swing for CYBR. 

Like FEYE, Cyberark Software Ltd (NASDAQ:CYBR) has struggled significantly on the charts -- giving back over half its value since its June high, and also hitting an annual low yesterday. Yet, the stock is 6.2% higher today at $37.34. 

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