CyberArk Software issued an IPO on September 24, 2014 under the ticker CYBR, and it immediately became a market darling by more than doubling in price during its first three months of trading.
A little background: CyberArk is an Israeli-based security company that protects organizations from cyber attacks via a host of products, including government applications. As we read in the news each day about multiple hacks into major companies and organizations, there is no question that CyberArk has a ready clientele base.
As a newly issued stock, though, CyberArk can be tricky to trade. Here are two methods you could follow:
Wait for lockup agreements to expire
Lockup agreements are legally binding contracts between the underwriters and insiders of a company; the contract prohibits these individuals from selling any shares of stock for a specified period of time – generally six months – in order to create an element of stability in the stock price. (CyberArk has a current lockup expiration date of March 23.)
When lockups expire, anyone on the restricted list can sell their stock – and it can cause a large drop in share price due to the increase in supply of stock. Goldman Sachs is the second largest holder of CyberArk shares, so I will look for filings from them going into the expiration.
It’s also noteworthy to point out that their last earnings report was a positive surprise, and it took the stock to new highs before starting a new consolidation period. (Their next earnings report is scheduled for February 12).
Let’s look at the chart:
We are currently in a very narrow trading box (aka, consolidation). You could do one of two things:
Trade the range of the box
While we wait for the resolution of consolidation, simply trade the range of the box, which is between $35 and $43.60.
Look back to the first trading box, and you will see how it channeled for days before breaking out and running to new highs. As we are currently at the bottom of the channel and pretty close to oversold, this provides a low-risk entry with a goal to get a trade back to the top of the channel. Upcoming earnings could be the catalyst for share price to move higher.
Prudent traders could enter a trade here with a snug stop right beneath the trading box, or around $34.80. You would be risking $1.85 for the potential to make $6.95. As the price rises towards the top of the trading box, you may choose to pare back your position by one third, leaving you with a nominal position should price choose to travel back to the bottom of the trading box.
Here’s another idea, which is basically a piggyback off the channel trade. Should the stock attempt a breakout on earnings, you would still be holding a nominal position if you trade the channel. When the stock trades 1% above the all-time high of $47.01, that would confirm that you should add back your shares and place your stop right underneath the top of the former trading box. I would consider this trade in common stock only, as options volume and open interest are uninspiring at this point.
