A way to play the emerging AI enthusiasm in cybersecurity stocks using options

Published Tue, Jun 11 202410:38 AM EDT

Nishant Pant @TheMeanTrader @TheMeanTrader

As the AI bubble turns into a mania and AI shifts to the cloud, many companies can benefit indirectly from this boom. One such sector is cybersecurity, and we are already seeing signs of this all around us. CrowdStrike just hit new all-time highs this week ahead of its inclusion in the S & P 500. Since that stock has already hit new highs, I am looking to participate in this sympathy move by using another cybersecurity darling, Palo Alto Networks (PANW) , as a proxy trade. Shown below is a 6-month daily chart of PANW. I have used some technical indicators to form a bullish bias on this stock: RSI (Relative Strength Index) analysis: Interpreting the RSI is a fundamental aspect of technical analysis. A bullish price momentum accompanied by an increasing RSI indicates the strength of the move. With PANW, we are seeing an RSI which is sharply shooting upwards confirming the bullish momentum. DMI crossover: PANW experienced bearish price movement between 5/28 – 6/5. Note the red and green lines of the DMI indicator. When these lines, also known as DI+ and DI-, cross each other, it is widely considered a trend reversal signal. In the chart below, we see that a DMI crossover happened on 6/7. Price action: Finally, if you look at the price action itself, it shows a clear uptrend as indicated by higher highs and higher lows. The trade To bet bullish on PANW, the trade structure I have used here is called a "bull call spread". With PANW trading at $308 at the time of writing this, I would need to buy a $305 call and sell a $310 call as a single unit. Here is my exact trade setup: Bought $305 call, 7/5 expiry Sold $310 call, 7/5 expiry Cost: $250 Potential Profit: $250 If PANW pulls back a little, a $300-$305 call spread would be a better bang for the buck. We have important inflation-related data (CPI) coming out this Wednesday, followed by the FOMC rate decision and Jay Powell's conference. These events are known to generate significant market volatility, so a prudent approach would be to wait until Wednesday before considering this trade setup. If PANW trades at or above $310 by the expiration date, this trade could yield a return of 100% on the amount risked. With 10 contracts, this equates to risking $2500 to potentially gain $2500 DISCLOSURES: (None) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.