As the AI bubble turns into a frenzy and AI moves to the cloud, many companies can indirectly benefit from this boom. One such sector is cybersecurity, and we are already seeing signs of this up close. CrowdStrike hit a new all-time high this week ahead of its inclusion in the S&P 500. Since its stock has already hit new highs, I would like to participate in this sympathetic move 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 several technical indicators to form a bullish bias for this stock. RSI (Relative Strength Index) Analysis: Interpretation of the RSI is a fundamental aspect of technical analysis. Bullish price momentum accompanied by a rising RSI indicates the strength of the move. PANW has seen a sharp rise in the RSI, supporting the bullish momentum. DMI Crossover: PANW experienced a bearish price movement between 5/28 and 6/5. Note the red and green lines of the DMI indicator. When these lines, also known as DI+ and DI-, cross, it is generally considered a trend reversal signal. In the chart below, we can see that the DMI crossover occurred on 6/7. Price Action: Finally, looking at the price action itself, it shows a clear upward trend, as indicated by the rising highs and lows. The Trade To bet bullishly on PANW, the trade structure I used here is called a “Bull Call Spread.” Since PANW is trading at $308 at the time of writing, I would need to buy a $305 call and sell a $310 call as one unit. Here is my exact trade setup: Buy a $305 call expiring 7/5 Sell a $310 call expiring 7/5 Cost: $250 Potential Profit: $250 If PANW drops a bit, the $300 and $305 call spread would be more cost-effective. Important inflation-related data (CPI) will be released this Wednesday, followed by the FOMC interest rate decision and Jay Powell’s meeting. These events are known to cause significant market volatility, so a wise approach would be to wait until Wednesday before considering this trade setup. If PANW trades above $310 by the expiration date, this trade could potentially generate a profit of 100% of the amount risked. With 10 contracts, you would be risking $2,500 and potentially making a profit of $2,500. Disclosures: (None) The above content is subject to our Terms of Use and Privacy Policy. This content is for informational purposes only and does not constitute financial, investment, tax or legal advice or a recommendation to purchase any securities or other financial assets. The content is general in nature and does not reflect any individual’s unique circumstances. The above content may not be suitable for your particular situation. You should strongly consider seeking advice from your own financial or investment advisor before making any financial decisions. Click here for the full disclaimer.
How to ride the rising AI craze in cybersecurity stocks with options
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