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Cisco Systems, Inc.'s (CSCO) Bullish Bandwagon Not Full Yet

Traders are stocking up on CSCO's out-of-the-money July 26 call

by 5/31/2013 11:50 AM
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Cisco Systems, Inc. (NASDAQ:CSCO) traders are targeting out-of-the-money calls today, in what has become a bit of a trend -- one that we addressed both on Tuesday and on Thursday. Specifically, the July 26 call is garnering notable attention among the options crowd.

Close to 100% of the 16,390 calls at the strike have gone off at the ask price, meaning they were purchased. Since implied volatility is up, it's likely that some of these positions are newly initiated, as CSCO call buyers continue to up the ante following an earnings-related bull gap two weeks ago.

The volume-weighted average price (VWAP) for the calls is $0.21, so from its current perch of $24.48, Cisco shares need only advance 7% to $26.21 (strike plus VWAP) by back-month options expiration. That seems like child's play for a security that's gained nearly 25% in 2013, and close to 50% over the past year. That momentum doesn't appear to be slowing down, either. Thanks in large part to the aforementioned bull gap, CSCO's left the S&P 500 Index (SPX) in the dust over the past month, outpacing the bellwether indicator by almost 14 percentage points.

Today's bullish action is an extension of Cisco Systems, Inc.'s (NASDAQ:CSCO) recent trend in the options pits, where it sports a 10-day call/put volume ratio of 3.98, according to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). In other words, calls are being bought to open by a count of 4-to-1 over puts, which ranks in the 92nd percentile of comparable readings taken in the past year.

Likewise, the stock has a Schaeffer's put/call open interest ratio (SOIR) of 0.48, meaning that call open interest for options expiring in the next three months is more than doubling put open interest. The SOIR has never been lower over the last 52 weeks, either, indicating that near-term optimism toward CSCO has reached fever pitch.


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