Palo Alto Networks Call Volume Heats Up

Palo Alto Networks Inc (NYSE:PANW) call options are trading at an accelerated pace today

Mar 8, 2017 at 3:14 PM
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Shares of Palo Alto Networks Inc (NYSE:PANW) got hammered last week after the cybersecurity firm reported earnings. The stock was last seen trading at $114.68 -- down 25% year-over-year -- but it appears a few options traders are looking for a sharp rebound in the days ahead. Specifically, PANW call volume is accelerated today, thanks to heavy interest in the March 120 call, which expires at the close next Friday, March 17. It appears buy-to-open activity is taking place here, meaning options traders are looking for a nearly 5% surge before expiration. 

The 120 strike has been popular among PANW options traders. Peak open interest sits at the weekly 3/24 120-strike call, after nearly 7,600 positions were added during the past two weeks. Plus, data from the major options exchanges confirms notable buy-to-open action. This unusual bullish bias is further illustrated by the fact that the stock's 10-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is 2.07 -- higher than 85% of the past year's readings. 

However, short interest on Palo Alto Networks stock hit an all-time high during the most recent reporting period, with more than 8 million shares now sold short -- 9.1% of the stock's available float. As such, it's possible some of the recent call activity is a result of short sellers seeking upside protection in the form of call options. 

Still, it's an excellent time to buy Palo Alto Networks Inc (NYSE:PANW) options. Not only does the stock's Schaeffer's Volatility Scorecard (SVS) sit at a lofty 81, its Schaeffer's Volatility Index (SVI) of 28% ranks in just the 10th annual percentile. Said differently, PANW is a stock that has a tendency to make bigger-than-expected moves on the chart compared to what the options market prices in -- and premium on short-term contracts is currently lower than normal, from a volatility perspective. 

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