TAKEAWAYS
- Zscaler was identified as a stock gearing up for a bullish trend in the OptionsPlay Strategy Center.
- Technical and fundamental analysis of Zscaler makes the stock an ideal candidate for a put vertical options trade.
As the cybersecurity landscape continues to evolve with increasing digital threats, Zscaler, Inc. (ZS) stands out as a new opportunity after lagging for most of 2024. Recent chart setups in Zscaler stock suggest ZS may be gearing up for a significant bullish trend.
In this analysis, we will break down the bullish signals and Zscaler's financials, and then outline an optimal options strategy you can apply to capitalize on this opportunity—all identified instantly using the OptionsPlay Strategy Center within StockCharts.com. We've included a video illustrating this tool at the end of this article, which will help you get a better idea of how you can apply it to your options trading.
FIGURE 1. DAILY CHART OF ZSCALER. The stock price has broken out above a significant resistance level, and its performance relative to the S&P 500 is improving.Chart source: StockCharts.com. For educational purposes.
Looking at the daily chart of ZS, there are several bullish factors:
- Breakout Above Major Resistance. After trading below $200 since March, ZScaler's stock price has recently completed a bottoming formation and broke out above this critical resistance level. The prolonged consolidation period below $200 formed a solid base, indicating that selling pressure has subsided with buyers gaining control.
- Market Outperformance. Relative to the S&P 500 ($SPX), ZS's performance has been improving, suggesting relative strength and increased investor interest in the stock.
These technical factors collectively point towards a potential continuation higher after breaking out above this key $200 resistance level.
Beyond the technicals, Zscaler's fundamentals further strengthen the bullish thesis:
- Robust Revenue Growth. Zscaler reported a 30% year-over-year increase in revenue, reaching $593 million.
- Impressive Billings Increase. The company achieved a 27% growth in billings, totaling $911 million.
- Expanding Customer Base. Zscaler now serves 567 customers with over $1 million in annual recurring revenue (ARR)—a 26% increase—and 3,100 customers with over $100,000 in ARR, marking a 19% growth.
- High Gross Margin. Maintaining a non-GAAP gross margin of 81% for fiscal year 2024 showcases the company's operational efficiency and profitability.
- Strong Free Cash Flow. With a free cash flow margin of 27%, Zscaler demonstrates robust cash generation capabilities, providing financial flexibility for future investments and growth initiatives.
Zscaler's strong financial performance highlights its potential for continued growth. The company's focus on innovation and the expansion of its Zero Trust Exchange platform positions it well to capitalize on the increasing demand for cloud-based security solutions.
Options Strategy
To leverage this bullish outlook on ZS, the OptionsPlay Strategy Center suggests selling the Dec 27 $205/190 Put Vertical @ $5.60 Credit.
- Sell. December 27 $205 Put Option at $12.15
- Buy. December 27 $190 Put Option at $6.60
This strategy involves selling a higher strike put and buying a lower strike put, resulting in a net credit of $5.60 per share, or $560 per contract. The trade profits if ZS stays above $199.40 by the December 27, 2024 expiration date, with a 56.92% probability of success.
FIGURE 2. PUT VERTICAL RISK GRAPH. Here, you see the max reward, max risk, and other details of the trade.Image source: StockCharts.com. For educational purposes.
Trade Details:
- Maximum Potential Reward. $560 (the net credit received)
- Maximum Potential Risk. $1,880 (difference in strike prices multiplied by 100 shares per contract, minus the net credit)
- Breakeven Point. $199.40 (strike price of the sold put minus the net credit per share)
This strategy benefits from time decay and allows for profit even if the stock remains stagnant or rises moderately. It provides a favorable risk-to-reward ratio while aligning with the bullish outlook on ZS.
Real-Time Trade Ideas With OptionsPlay Strategy Center
This bullish opportunity in Zscaler was identified using the OptionsPlay Strategy Center within StockCharts.com. The platform automatically scanned the market, highlighted ZS as a strong candidate for a continuation higher, and structured the optimal options trade in real-time.
FIGURE 3. APPLYING THE OPTIONSPLAY STRATEGY CENTER. ZS was identified as a stock that has potential for a continued move higher. Click the arrow to the left of the stock symbol to view the trade details.Image source: StockCharts.com. For educational purposes.
By subscribing to the OptionsPlay Strategy Center, you can access:
- Automated Market Scanning. Effortlessly discover the best trading opportunities based on comprehensive technical and options strategies in real time.
- Optimal Trade Structuring. Receive tailored options strategies that align with your market outlook and risk tolerance.
- Time-Saving Insights. Save hours of research with actionable trade ideas delivered in real time, allowing you to make informed decisions swiftly.
Don't let valuable trading opportunities pass you by. Subscribe to the OptionsPlay Strategy Center today and empower your trading journey with tools designed to keep you ahead of the market. Access real-time trade ideas like the one discussed in this article and find the best options trades within seconds daily. Let OptionsPlay be your partner in navigating the markets efficiently and effectively.
Learn more about the OptionsPlay Strategy Center features and how to apply them to your trading in the video below!
