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Yesterday, Cisco Systems, Inc. (NASDAQ:CSCO) announced a partnership with Facebook Inc (NASDAQ:FB) to provide hotels, retailers, and other large businesses with free wireless Internet for customers that log in via the social network. Elsewhere, in CSCO's options pits, trading was faster than usual, with 72,000 total contracts crossing the tape -- a 38% mark-up to its average daily volume. The most exchanged option was the July 25 call.
Nearly 19,300 contracts traded at the aforementioned strike -- including blocks of 15,000 and 2,500 -- with over nine-tenths changing hands at the bid price, suggesting they were sold. Most of those contracts translated to open interest this morning, as well, indicating the majority were freshly minted at a volume-weighted average price (VWAP) of $1.18. This theory is confirmed by data from the International Securities Exchange (ISE), which reported massive sell-to-open activity at this strike on Wednesday -- most of which was firm-generated.
What's more, the block of 15,000 sold calls crossed within minutes of the tied purchase of 570,000 CSCO shares. With delta on the option arriving at 0.39, or 39%, by the close -- not long after these transactions took place -- it looks as though at least one firm might be hedging its risk by purchasing enough CSCO shares to cover about 38% of its short call exposure.
Technically, Cisco Systems, Inc. (NASDAQ:CSCO) is coming off of a three-year high of $26.49, notched on Aug. 7. Since then, however, the shares have lost nearly 12% to trade at $23.39, and have underperformed the broader S&P 500 Index (SPX) by roughly 11 percentage points.
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