February 19, 2015 / 9:30 PM / 5 years ago

Options traders bet on growing U.S. demand for cyber security

NEW YORK (Reuters) - A barrage of damaging cyber attacks has shaken up the security industry, and traders in the options market are betting on cyber security companies benefiting from increased spending as governments and businesses boost security.

A photo illustration shows a USB device being plugged into a laptop computer in Berlin July 31, 2014. REUTERS/Thomas Peter

Cyber security has become a major concern for U.S. firms with recent high profile data breaches reported at Sony Pictures Entertainment, Target Corp, Home Depot Inc, and most recently at health insurer Anthem Inc.

Analysts see Cyber security companies FireEye Inc and CyberArk Software Ltd benefiting from increased spending on security.

“Overall, call buying seems to be driving a lot of the order flow in both names as players in the options market take positions in anticipation of additional upside for shares in the days/weeks ahead,” said Fred Ruffy, options strategist at WhatsTrading.com.

While the sector as a whole is doing well, recent strong quarterly results by both FireEye and CyberArk is helping drive their shares higher, said Jim Smith, options strategist at OTR Global.

Israel-based CyberArk’s U.S.-listed shares have jumped more than 50 percent since the start of the year and FireEye’s shares have risen by about a third.

Traders in the options market have jumped at the opportunity to bet on further gains for the shares. So far in February, the average daily volume in FireEye calls, typically used to make bullish bets on stock, is at about 37,000, or nearly twice the average volume over the previous 100 days, according to Trade Alert data.

FireEye shares were trading at $44.22 on Thursday on Nasdaq. The median price target on FireEye shares is at $43.50, up $5 from 30 days ago, according to Thomson Reuters data.

CyberArk Software calls have seen a similar surge in activity in February with average daily volume rising to about 5,000 contracts, compared with the less than 1,000 contracts a day since they were listed in October.

A surprisingly strong showing by CyberArk when it posted quarterly results on Feb. 12 points to increasing recognition of the company’s technology, analysts at William Blair & Co said in a post-earnings note.

The PureFunds ISE Cyber Security ETF, which invests in companies that develop products or provide services tied to malware protection, has risen 16 percent since its November launch and touched a high of $28.97 on Thursday.

Reporting by Saqib Iqbal Ahmed; Editing by Cynthia Osterman

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