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Cisco Systems Option Traders Eye Long-Term Gains

CSCO's March 21 call saw heavy buy-to-open activity on Friday

by 12/31/2012 9:23 AM
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Calls were popular on Cisco Systems, Inc. (NASDAQ:CSCO - 19.45) Friday, outpacing their put counterparts by a more than two-to-one margin. Longer-term traders honed in on CSCO's March 21 call; of the roughly 5,600 contracts that crossed the tape here, 95% did so at the ask price. With open interest adding 2,338 positions over the weekend, it can be assumed that a portion of this activity was of the buy-to-open variety.

By purchasing these out-of-the-money calls for a volume-weighted average price (VWAP) of $0.41, traders need CSCO to land above $21.41 (the strike price plus the VWAP) by March expiration for these bets to be profitable. This breakeven level represents a 10.1% premium to the stock's current price.

Expanding the scope shows that Friday's preference for calls was just more of the same for option players. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 247 calls for every 100 puts throughout the past 20 sessions. Additionally, the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.54 ranks in the 11th percentile of its annual range, suggesting short-term speculators are more call-heavy than usual toward CSCO.

Although CSCO is sitting on a modest 7.6% advance in 2012, the shares have rallied 16.7% off their most recent low of $16.68, which was tagged on Nov. 9. However, this upward momentum was thwarted near the $20-to-$20.25 neighborhood, an area that served as resistance in late April. Should this region continue to serve as an overhead ceiling during the next three months, the most Friday's call buyers stand to lose is the initial premium paid.


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