During his State of the Union address, President Obama said the Senate may fast-track a cybersecurity bill, sending the shares of FireEye (FEYE), Palo Alto Networks (PANW), Cyberark Software (CYBR), Intel (INTC) and most other companies with a cybersecurity aspect to them zooming on what was otherwise a down day.
As cybersecurity is one of my long-term themes for 2015, I thought we’d take a look at FireEye. FireEye is a virtual machine-based security platform that provides real-time protection to enterprises and governments worldwide against the next generation of cyber attacks. It basically sniffs out known and unknown threats and shuts them down by signature-based technology that other companies are yet able to detect.
Options traders have focused in on the February $32.50 calls with a volume of 4646 contracts traded against an open interest of 56 and also on the February 40 with 1253 contracts traded against an open interest of 2371. (Earnings are scheduled to be released on February 11). On Friday, January 30, Cramer declared, “FireEye seems like it’s a sweet spot.”
This chart has been traveling in a channel for the past few months, and I would expect a tag of the bottom trendline to happen again – which is also where I would attempt to buy it. I like this for a longer term trade, so I would opt to trade it as a covered call.
Using the closing numbers from January 30, of $34.50, you can buy the stock for $34.50, sell the March 2015 monthlies for $1.45 or better, resulting in a 14.3% return if the stock were to call away, 4.2% downside protection ($33.10).
If the stock calls away, you make $4.95 per share or $495 per contract sold. (I don’t think that the stock will travel that high by expiry, which is why I picked the higher strike.) If the stock does not call away, I will simply write additional contracts against my common, creating a nice income flow.
Disclosure: I am long FEYE common.