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Cisco Systems, Inc. (NASDAQ:CSCO - 21.57) is trading lower today, but the pullback has failed to faze optimistic option players. Around 25,000 calls have crossed the tape so far, more than doubling the number of puts that have changed hands. The stock's April 22 call has emerged as a crowd favorite. The majority of the 3,600 contracts traded here have gone off at the ask price, and implied volatility was last seen higher, suggesting that a portion of today's activity is of the buy-to-open variety.
By purchasing the out-the-money calls for a volume-weighted average price (VWAP) of $0.26, traders will reap a reward with each step above $22.26 (strike plus VWAP) the stock takes through the close on April 19, at which point back-month options expire. This breakeven mark represents expected upside of 3.2% from present levels. Delta for the call is currently resting at 0.35, or 35%, implying the options market is giving the position a roughly 1-in-3 chance of landing in profitable territory over the next five weeks.
Today's affinity for long calls is nothing new for option players, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Over the course of the past 10 sessions, traders have bought to open 51,982 calls, compared to 14,153 puts, bringing the stock's call/put volume ratio to 3.67. What's more, this ratio ranks higher than 82% of other such readings taken in the past year, pointing to a healthier-than-usual appetite for bullish bets over bearish of late.
Technically, CSCO has been charting a steady path higher in recent months, with the stock up 30% from its early November low of $16.68. In fact, the equity tagged a two-year high of $21.98 yesterday. Hitting this notable milestone sent CSCO soaring through its upper Bollinger Band, suggesting a near-term consolidation could be in the cards.
As touched upon, the stock is down around 1.4% in today's session, after Standpoint Research cut its outlook on CSCO this morning to "hold" from "buy." At last check, the equity was lingering near $21.57. Should CSCO fail to topple the aforementioned strike price by April expiration, the most today's bulls stand to lose is the initial premium paid.