Palo Alto Networks (PANW) Might Be a UFO!

I was taking a trip through cyberspace when I encountered a wall made of fire! Then something about deletion in progress? I don't know, but I think it might be a UFO!

As the market falls from its high, I'm trying to focus on companies that may have been overly punished and are below fair value. But before I get to Palo Alto Networks...

What's the Word on the Street?

The market is down today. The jobs report for July released this morning and showed labor market weakness. Fewer jobs were created than expected, the unemployment rate went up, and previous month’s reports were revised upward.

Bad news like that could almost be taken as good news by the market, as that data would help give the Federal Reserve a reason to cut interest rates. However, tariffs being implemented that could fuel inflation clouds the economic outlook.

More data is needed to give clarity to the market and the Fed which will meet again in September to decide whether or not to cut rates. Until then, there are still UFOs to trade and today is…

Pablo Alto Networks (PANW)

What Is It?

Palo Alto Networks, Inc. engages in the provision of network security solutions to enterprises, service providers, and government entities. It operates through the following geographical segments: the United States, Israel, and Other Countries. The company was founded by Nir Zuk in March 2005 and is headquartered in Santa Clara, CA. The listed name for PANW is Palo Alto Networks, Inc. Common Stock.

Why Is It a Possible UFO?

Primarily its current share price relative to its fair value, what other option traders expect, and its volatility are the reasons PANW could be a UFO.

What About Recent News?

Palo Alto Networks recently announced a major $25 billion acquisition of CyberArk in an attempt to transform the cybersecurity industry. The stock fell after the announcement due to analysts lowering their price targets over concerns that there might be limited synergy and difficulty integrating the two companies.

What’s the Current Price?

Despite the tech rally, PANW is down on the year. This is largely due to the stock taking a ~14% hit in the past week. Investors are really punishing the stock over the CyberArk acquisition and I think it’s probably an overreaction, at least in the short term.

What’s the Fair Value?

I’d first like to emphasize that fair value is subjective. Many analysts at many banks and institutions rate stocks differently and assign fair value in their own unique way. So, what I like to do is take all the recent fair values since the most recent earnings report and average them. In this case…

Since PANW’s most recent earnings report on 05/20/2025, it has received 10 ratings and taking the average, the fair value might be somewhere around: $217.80.

8 ratings are a Buy, 1 is a Hold, and the Morningstar rating is unknown. The lowest price target is $177, while the highest is $235.

What Do Options Traders Think?

Calls are trading over equidistant Puts, which means traders think there is a chance to the upside. You can see because… forget about the green columns and focus on the red. Notice how on the right side for the $155 Put it says $2.15, it’s $3.30 for the equidistant Call at $190.

The premium (the credit you receive for executing the trade) is currently less for selling Puts, as opposed to selling Calls. Basically because of that, option traders expect the stock to go up, rather than down.

How About Volatility?

The IV rank (the purple line) for PANW (stock price in blue) is currently hovering around 56, which is fairly elevated (IV rank goes from 0-100). This makes short strategies (which are what I prefer) more attractive.

What's the Trade?

My preferred trade is a variation of the wheel without the rolling, AKA cash-secured puts. I typically like to target stocks that offer a dividend and are below fair value. 

Why a dividend? If the trade results in assignment and I’m on the hook for X amount of shares, I can at least be satisfied knowing I picked a (hopefully under fair value) company that will pay me a small amount while I run the other side of the trade AKA covered calls.

PANW does not offer a dividend, but that’s not a dealbreaker!

It’s a fairly low-risk strategy (all options trading is risky!), that has a higher probability of success, but requires a higher amount of collateral. 

So if you saw the most recent image above, I already STO (sold to open) 1 contract of the $155 Put for the September 5th expiration. I like to have a DTE (Days To Expiration) that is around ~45 days.

When the trade reaches 50% profit I will buy it back. I don’t like to be greedy and go for more profit, because I would rather not waste my time being in a trade for too long.

What About Alternative Trade Ideas?

1. If the collateral requirement is too high, another idea is a put credit spread. You would sell a put at a strike below the current share price and then buy a put at a lower strike than the put you sold. By doing so, you will avoid the collateral requirement of a cash-secured put, but the credit received will be smaller. Also, if the trade goes sideways, you will not be assigned shares so no collecting dividends and running covered calls afterwards.
2. Just invest! 1 share or even fractional shares are a way to get a foothold in a stock that you think might increase in value.

Wait…Where Are the Candlesticks? And All the Other Indicators?

I know many traders love their candlesticks and a ton of indicators. I prefer simplicity. Candlesticks aren’t necessary unless you’re the kind of trader that wants to try and pick the perfect moment to execute a trade, and even then it’s not a sure thing. 

As for indicators, there are a ton. Some of them work sometimes. None are perfect. I don’t want to get bogged down with too many. You’ll drive yourself crazy looking at too many of them, so find a handful you like and stick with those.

Disclosures

• I currently have an open trade with PANW (as mentioned in this post).
• No trade is a sure thing. There is always risk involved. 
• This blog post is not meant to take the place of financial advice, but hopefully acts as a guide for learning or informational purposes.