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Although overall activity has been rather slow in Cisco Systems, Inc.'s (NASDAQ:CSCO) options pits today, the stock is continuing to see heavy action among short-term calls. In fact, seven out the 10 most heavily traded options today are calls expiring in three months or less. So far, the top position trading is the in-the-money November 23 strike.
At this strike, nearly 5,200 contracts have crossed for a volume-weighted average price (VWAP) of $1.44. The lion's share of the contracts -- including a block of 3,741 -- went off at the ask price, while implied volatility has ticked higher, pointing to the initiation of fresh long-call positions.
In order for today's call buyers to profit, CSCO has to advance into territory last touched on Aug. 21. over the next two-plus months. Specifically, the stock has to topple the breakeven price of $24.44 (strike price plus the VWAP) by the close on Nov. 15, when these options expire. This represents expected upside of just 2.6% from CSCO's current perch at $23.83.
While CSCO boasts a year-to-date gain of 21.3%, the stock has been on the downturn as of late, dropping 8.5% in the past month -- mostly in the form of an earnings-induced bearish gap on Aug. 15 -- and underperforming the broader S&P 500 Index (SPX) by 7.4 percentage points in the same time frame. Should the IT firm continue its recent trend and finish south of the 23 strike upon expiration, the most today's call buyers stand to lose is the initial premium paid -- which is nothing to lose sleep over, considering the stock's Schaeffer's Volatility Index (SVI) of 19% ranks in the 8th percentile of its annual range. In other words, Cisco Systems, Inc.'s (NASDAQ:CSCO) short-term options have rarely been this inexpensive over the last year, relatively speaking.
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