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Bulls Bet On a Cisco Systems, Inc. (CSCO) Breakout

Weekly call buyers think CSCO will move higher by this Friday's close

by 12/9/2013 1:59 PM
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Option Brief: Cisco Systems, Inc. (NASDAQ:CSCO) call volume nearly triples put volume today, and that's largely thanks to an influx of trades at the weekly 12/13 21.50-strike call, where more than 26,800 contracts have changed hands. The majority of the transactions at the strike have transpired off the ask, volume exceeds current open interest levels, implied volatility has surged 11.0 percentage points, and information from the International Securities Exchange (ISE) confirms buy-to-open activity.

By purchasing the calls, today's traders expect CSCO -- currently perched at $21.28 -- to muscle north of $21.50 by the closing bell on Friday. If the necessary move fails to materialize, the most these speculators will forfeit is the initial premium paid. Fortunately, based on the stock's Schaeffer's Volatility Index (SVI) of 18% -- which ranks lower than 93% of other such readings from the past year -- premium on short-term CSCO options is cheap right now, relatively speaking.

Technically, the shares have been in a steady downtrend since hitting a two-year high of $26.49 in early August, bringing their year-to-date gains to just over 8%. For the past few weeks, the equity has been consolidating just below the $21.50 level. Consequently, delta on the call sits at a fairly pessimistic 0.37, signaling just a 37% chance the option expires in the money.

In company news, Cisco Systems, Inc.'s (NASDAQ:CSCO) Senior Vice President of the Security Business Group is scheduled to speak tomorrow at the BMO Capital Markets Technology and Digital Media Conference in New York. The presentation is slated to begin at 2:45 p.m. ET.


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