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Most Active Options Update: Cisco Systems, Inc. (CSCO)

Cisco Systems, Inc. put player bets on a longer-term retreat

by 5/20/2014 1:35 PM
Stocks quoted in this article:

The 20 stocks listed in the table below have attracted the highest total options volume during the past 10 trading days. Names highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. One name of notable interest this afternoon is Cisco Systems, Inc. (NASDAQ:CSCO).

Most

Cisco Systems, Inc. put players have been active of late, per the stock's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 1.04, which ranks in the 96th percentile of its annual range. In other words, puts have been bought to open over calls at a near-annual-high clip in recent weeks.

In today's session, it's just more of the same, with puts trading at a 46% mark-up to the average intraday pace, and outstripping calls by a healthy margin. Receiving notable attention from put players -- one in particular -- is CSCO's September 22 strike. Specifically, 99% of the 3,042 puts that have traded at this out-of-the-money strike did so when a large block of 3,000 crossed at an ask price of $0.39 apiece, pointing to buyer-driven volume. Implied volatility (IV) ticked higher at the transaction, and only nine contracts currently reside here, making it safe to assume that new positions are being initiated.

By purchasing the puts to open, the trader will profit as long as CSCO expires south of breakeven at $21.61 (strike less the premium paid) at the close on Friday, Sept. 19. Past that point, gains will theoretically accumulate on a move all the way down to zero. Conversely, should the stock finish north of the strike price at September options expiration, the most the put buyer stands to lose is the initial premium paid. Based on the put's current delta of negative 0.21, there is a roughly 1-in-5 chance the option will be in the money at expiration.

While the activity at the September 22 put is noteworthy, the most active strike in CSCO's options pits today is the October 26 call. However, it appears a number of traders are exiting their positions roughly five months ahead of expiration, as 81% of the 8,348 contracts traded have crossed at the bid price, and IV is lower -- two indications of sell-to-close activity.

On the charts, CSCO spent the past month or so churning in the $22.40-$23.40 range, before an earnings-induced pop last Thursday shot the equity through the $24 level. This area is containing today's 0.6% drop -- with the equity last seen near $24.20 -- suggesting this former area of resistance could now be switching to a more supportive role. Off the charts, Cisco Systems, Inc. (NASDAQ:CSCO) kicked off its annual investor day earlier, where the company's latest cloud service updates and new partnerships are most likely being discussed.

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