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Cisco Systems Option Traders Forecast an Earnings Win

CSCO's February 22 calls are popular today

by 2/1/2013 11:55 AM
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Calls are the options of choice on Cisco Systems, Inc. (NASDAQ:CSCO - 20.82) in today's session. Roughly 14,000 calls have crossed the tape, compared to fewer than 5,600 puts. Following in the footsteps of Thursday's option players, speculators are targeting CSCO's front-month series. Traders are upping the bullish ante, though, and are scooping up the stock's February 22 calls. Nearly all of the 2,912 contracts traded so far have changed hands at the ask price, and data from the International Securities Exchange (ISE) indicates a portion of today's activity is of the buy-to-open variety.

In order for these bullish bets to be profitable, CSCO needs to rise 6.4% to land above breakeven at $22.16 (strike plus the volume-weighted average price of $0.16) by the closing bell on Friday, Feb. 15, when front-month options expire. Should the stock fail to muscle above this overhead mark, the most today's call buyers stand to lose is the initial premium paid.

From a wider sentiment standpoint, calls have been preferred over puts on CSCO in recent weeks. During the past 20 sessions, traders at the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 110,461 calls, versus 53,109 puts, resulting in a call/put volume ratio of 2.08.

This bullishly slanted bias is echoed in the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.56. Not only does this show that call open interest nearly doubles put open interest among options expiring in three months or less, but it ranks in the 37th percentile of its annual range. In other words, short-term speculators are more call-heavy than usual toward CSCO.

The optimism isn't surprising given the equity's recent run higher. In addition to outperforming the broader S&P 500 Index (SPX) by almost 12 percentage points during the past 60 sessions, the stock has jumped nearly 25% from its Nov. 9 low of $16.68. This positive price action has been highlighted by CSCO's 32-day moving average, which has been ushering the security up the charts since mid-November.

Additionally, today's call buyers could be hoping on an earnings win to help boost the stock above breakeven, as CSCO followed up its last two bottom-line wins with moves to the upside. The tech titan is slated to unveil its quarterly results after the market closes on Wednesday, Feb. 13, and Wall Street is calling for a profit of 48 cents per share in CSCO's fiscal second quarter.

The equity was trading 1.2% higher in today's session on news that the company appointed Motorola Solutions, Inc. (NYSE:MSI) CEO Greg Brown to its board of directors. At last check, CSCO was hovering near $20.82.


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