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It’s a strange time for the cybersecurity industry. Considered an indispensable component of any modern economy, the ecosystem unfortunately suffered a massive black eye due to CrowdStrike’s (CRWD) catastrophic outage. Still, a competitor’s downfall could spell a discounted opportunity for sector player CyberArk Software (CYBR), even if options traders don’t see much potential in CYBR stock.
As Barchart contributor Baystreet mentioned, CrowdStrike is under intense scrutiny, with its outage resulting in severe disruptions in multiple sectors. Some of the consequences of the regrettable incident involved grounded flights, health service impacts, payment system crashes and access blockages to several other important services. Not surprisingly, CRWD stock suffered a double-digit loss on the news.
While CrowdStrike has emerged as a leader in the cybersecurity realm, that didn’t save its equity from nosediving. In the past five sessions, shares have lost more than 30% of market value. It’s not entirely clear when we’ll see a cessation of the red ink.
Per Baystreet, the “global outage has been attributed to an update malfunction in CrowdStrike's Falcon Sensor, a key component of their flagship cybersecurity platform. This software interacts with various parts of computer systems. The update caused these systems to malfunction, resulting in widespread technological failures.”
Though CrowdStrike is naturally bearing the brunt of the damage, rivals in the space haven’t gotten away cleanly. For example, CYBR stock slipped 5% in the past five sessions. Nevertheless, CyberArk is trading above key technical support lines, making it a possible buy-the-dip idea.
Unusual Options Activity for CYBR Stock Presents a Nuanced Argument
Given the headlines covering CrowdStrike’s disastrous system update failure and its broader implications, it wasn’t shocking to see both CRWD and CYBR ping Barchart’s screener for unusual stock options volume. This data readout provides a breakdown of derivatives that are experiencing unusually high (or low) volume relative to established averages.
For CYBR stock, total volume on Monday reached 3,942 contracts against an open interest reading of 24,867 contracts. Stacked against the trailing one-month average, Monday’s volume represented a 449.79% lift. However, the breakdown saw call volume come in at only 190 contracts while put volume shot up to 3,752.
At face value, this framework appears bearish: after all, puts allow their holders the right (but not the obligation) to sell the underlying security at the listed strike price. However, for every option bought, the same option must be sold. Therefore, it’s important to consider the profile of the main derivative market participants.
That’s where Barchart’s options flow screener comes into play, which filters exclusively for big block transactions likely placed by institutions. In other words, the screener ignores the one or two contracts that a retail investor might acquire and instead focuses solely on major transactions.
Breaking down all the premiums, Barchart calculated the net trade sentiment as $-43,000. In other words, options with bearish sentiment (bought puts, sold calls) outweigh derivatives with bullish sentiment (bought calls, sold puts). Again, this might not be a shock considering the ugly CrowdStrike incident.
However, CYBR stock enjoys a much stronger technical profile than CRWD. Right now, CYBR trades above its 50-day moving average, which is a common barometer for near-term market health. It’s also well above its 200 DMA, which gauges longer-term sentiment.
In contrast, CRWD finds itself significantly below its 50 and 200 DMAs. Again, it’s just not clear when CrowdStrike will regain its mojo. For speculators, CyberArk simply stands on firmer ground.
Fundamentals Smile on CyberArk Software
As criticism, it’s a fair point to state that the cybersecurity industry features many questions. With such a respected enterprise like CrowdStrike falling well short of its standards, it becomes more difficult for companies to justify premium expenditures in the internet security realm. Why pay money if systems designed to protect are going to fail catastrophically?
To be sure, the incident comes amid entities cutting into their software budget. At the same time, not putting enough money into cybersecurity could lead to horrendous results. In the U.S., the average cost per data breach clocked in at $9.48 million. Longstanding trends suggest that this figure will only rise.
So, the issue isn’t so much about the relevance of cybersecurity. Rather, it’s a matter of which cybersecurity brand to trust. CrowdStrike’s endpoint security system wasn’t so secure. However, that shouldn’t impugn upon CyberArk’s privileged access management business indefinitely. As a result, CYBR stock deserves a second look.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
