Zscaler (ZS) reports results today after lagging most cybersecurity peers for much of the year. Adjusted earnings are expected to grow more than 20% year over year to $1.09 per share. Revenue is expected to climb above $877.1 million, up from $719.23 million a year ago.
While peers like Palo Alto Networks (PANW), CrowdStrike (CRWD), Fortinet (FTNT), and Okta (OKTA) sit at or near all-time highs, ZS has trailed. The stock tumbled after management gave cautious guidance earlier this year. The open question: will ZS follow CRWD in showing that AI is lifting cybersecurity demand across the sector?
The bear concerns
The stock has been punished because of conservative forward guidance. The street viewed those projections as too cautious. The key worry for investors is rising capex paired with falling free cash flow, a trend likely to run through the end of 2026 and into 2027. One bright spot: free cash flow per share is up 428% over the last five years. Still, capex climbing while free cash flow drops, plus soft projections, drove the underperformance.
Zscaler's zero trust platform grew annual recurring revenue (ARR) 25% last quarter. On the May earnings report, management said ARR growth would slow to 22% for the current quarter, and to 16% to 17% for full fiscal year 2027. That dismal outlook sent the stock down over 31% last quarter. This raises the question of whether ZS is losing market share to rivals at a time when everyone points to growing cybersecurity need. The stock has pulled back more than 50% from all-time highs set a couple of years ago, while competitors sit near their highs. ZS is in bear market territory, down more than 20% so far this year.
Why the low bar could help
The bar is low, and that cuts both ways. Management may have guided below what they will actually report, especially with heavy short interest built up after the sour May outlook. Peers show strong growth, and CRWD said its ARR is expanding to record levels. That sets up a possible upside surprise for ZS.
Bullish trade: call diagonal
When the bar is low, any good news can push the stock higher. The bullish paper-money trade is a $20-wide call diagonal. Buy the September 11 175 call (in the money, the bullish leg), which expires in 8 days. Against it, sell the September 4 195 call, expiring at tomorrow's close, about $18 above where the stock trades near $177.
Cost is roughly $8.20 per spread, which is the risk ($820), less than half the $20 width. The low price comes from the difference in implied volatility: the September 11 175 call is bought at about 121% IV, while the September 4 195 call is sold at about 284% IV. Buying cheaper volatility and selling more expensive volatility lowers the entry price.
The trade carries about 25 delta and profits from a move up toward the 195 short strike. The one-day expected move is plus or minus $22, which lines up with the 195 target. Because it cost only $820 for a $20-wide spread, anything above about 177.80 turns profitable. Unlike a plain calendar spread, if the stock runs well past 195, this diagonal stays profitable.
Neutral-to-bearish trade: call vertical plus put calendar
The second, more passive trade is a four-legged, neutral-to-bearish structure that gives downside exposure. In the September 4 weeklies, sell a $5-wide out-of-the-money call vertical: sell the 195 call and buy the 200 call. That collects a credit, which helps pay for a downside 160 put calendar - buy the September 11 160 put and sell the September 4 160 put.
Profit peaks at or near the 160 strike. The trade is entered for essentially zero, no credit or debit (possibly a small debit), so the break-even sits at 195. Risk is $500 per spread, and that full loss only occurs above 200. This structure can answer whether you can profit if nothing happens: it has a bearish lean but still pays off if the stock stays flat, because the sold call vertical brings in premium. Once a direction is set, sell the call vertical and use that premium to buy the put calendar.
The four legs make it complex, but the short strike on the put calendar marks the peak profit point. Because nothing was spent on it, a big drop past that strike does not punish the position much. Even if the stock falls to 130 or 140, it is roughly a wash where profitability erodes but the trade aims for the 160 strike. Even if the stock rises but stays below 195, the trade can still profit.
The setup: one trade takes a more aggressive bullish stance, the other a more passive, neutral-to-bearish stance. Both lean on the wide gap in implied volatility across expirations, which makes diagonals the favored strategy for this event.
