Palo Alto Networks has been a central figure in what traders have been calling the “software apocalypse,” representing more than a 5% weight in the battered and bruised IGV software ETF . While the software sector was sold indiscriminately, Palo Alto was quietly building a “fortress” in cybersecurity, and I want to use options to own this essential cyber name. Palo Alto Networks didn’t just survive the software sell-off; they leveraged it. While peers are struggling with fragmented tools, Palo Alto is forcing a consolidation that makes them the operating system for security. This “platformization” pivot (offering free services now to lock in multiyear, high-value contracts) is a page straight out of the Apple playbook. PANW YTD mountain PANW year to date I believe this is an essential name to the U.S. economy. Here are a few bullish reasons to own this cyber workhorse, which is a constituent in my Essential 40 ETF (ESN) : Palo Alto is moving away from selling individual “point products” to offering an integrated platform. By offering free trials and consolidating services, they are creating high switching costs. Therefore, they aren’t just selling a firewall; they are becoming the security operating system for the Fortune 500. This leads to larger, multiyear contracts that provide massive visibility into future revenue. Unlike many growth-at-all-cost software names, PANW is a free cash flow machine with margins of 28%. Remaining performance obligations (RPO) are tracking at more than $12.6 billion, a 20% increase that signals the “platform” pipeline is not just intact; it’s accelerating. Palo Alto is one of the few cybersecurity firms successfully embracing as well as monetizing AI today through its Precision AI offerings. Their AI tools help customers automate 90% of security operations, reducing the time to remediate threats from days to minutes. This leading cybersecurity stock has been “de-risked” by the recent sector-wide sell-off. With earnings scheduled for June 2, the market is currently offering a “discount” before management provides the next update on this critical and essential name. Risk reversal: Sold the $190 June 18 put for $9.50 Bought the $200 June 18 call for $12.25 This risk reversal will cost an investor $2.75 or $275 per one lot. PANW was trading around $198 when this was executed, an investor must be prepared to own PANW in the event the stock closes below $190 on expiration. DISCLOSURES: Kilburg is long this spread and long PANW in Essential 40 ETF (ESN) . All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
