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Cisco Systems, Inc. (NASDAQ:CSCO) finished Monday's session slightly lower at $25.85, despite receiving an early morning price-target hike from RBC. Elsewhere, options trading heated up, as total volume ran at a 65% mark-up to the average daily amount. Also, short-term contracts were sought-after, per the stock's 30-day at-the-money implied volatility, which rose 2.3% to close at 24.8%.
The most active strike by a mile, however, was the slightly longer-term September 27 call, where 27,611 contracts traded. The majority were exchanged at the ask price, and open interest soared overnight, suggesting fresh bullish positions were created for a volume-weighted average price (VWAP) of $0.45.
In a nutshell, yesterday's call buyers expect CSCO to muscle past breakeven at $27.45 (strike plus VWAP) -- territory not explored since May 2010 -- by the close on Friday, Sept. 19, when back-month options expire. Profit potential is theoretically unlimited beyond this mark. By contrast, the maximum potential loss is limited to the initial premium paid, should shares of Cisco Systems, Inc. (NASDAQ:CSCO) fail to topple the strike at expiration.