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Can Cisco Systems, Inc. (CSCO) Break Free from Its Trading Range?

Cisco Systems, Inc. has not traded north of $27 since May 2010

by 7/2/2014 8:56 AM
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Cisco Systems, Inc. (NASDAQ:CSCO) has spent the past six weeks churning between $24.50 and $25, home to its 32-day moving average and peak call open interest in the July series, respectively. Despite this tepid price action, a number of option players on Tuesday bet on a breakout to the upside over the next two months -- and a move to levels not seen in more than four years.

Taking a step back, CSCO calls traded at more than 14 times the daily average on Tuesday -- though significant overnight closeouts at in-the-money July strikes suggests the activity may have been due, in part, to the security's ex-dividend date today. However, the stock's September 27 call also saw notable activity, where the majority of the 37,464 contracts traded did so at the ask price, hinting at buyer-driven volume. Implied volatility edged higher, and open interest rose the most of any strike overnight, making it safe to assume new positions were initiated. As noted, CSCO hasn't seen the north side of $27 since May 2010, so it's not surprising to see delta for the call perched at a low 0.20.

Widening the scope reveals that sentiment is strongly bullish toward a stock that's up 17% from its March 17 year-to-date low of $21.27 to trade at $24.89. Specifically, the equity's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 4.36 ranks in the 86th percentile of its annual range. Simply stated, Cisco Systems, Inc. (NASDAQ:CSCO) calls have been bought to open over puts with more rapidity just 14% of the time within the past year.


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