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The shares of Cisco Systems, Inc. (NASDAQ:CSCO - 21.10) are bucking this morning's broad-market trend lower, and options traders are betting on even more upside from the IT equipment maker in the short term. In early action, the blue chip has seen roughly 22,000 calls cross the tape -- a 25% mark-up to its average intraday volume, and more than double the number of CSCO puts exchanged.
Attracting the most attention have been the February 23 and March 20 calls, which have seen about 5,100 and 4,700 contracts traded, respectively. Nearly all of the calls have changed hands at the ask price, and implied volatility is notably higher at each strike, hinting at freshly bought bullish bets.
More specifically, the volume-weighted average price (VWAP) of the front-month calls is $0.08, meaning the buyers will profit if CSCO topples the $23.08 level (strike plus VWAP) – in territory not explored since late 2010 -- by the closing bell on Friday, Feb. 15. Meanwhile, the VWAP of the back-month calls is $1.40, indicating a more conservative breakeven rail of $21.40 -- just a hair's breadth from CSCO's current price, and 10 cents north of its current annual high.
As my colleague Karee Venema noted on Friday, Cisco Systems is scheduled to report earnings on Wednesday, Feb. 13, which could explain the growing affinity for short-term calls. Currently, the equity's Schaeffer's put/call open interest ratio (SOIR) sits at 0.54, indicating that calls nearly double puts among options with a shelf-life of three months or less. Plus, this ratio ranks in the 16th percentile of its annual range, implying that near-term options traders are more call-heavy than usual at the moment.
Now also appears to be an opportune time to gamble on CSCO. The stock's Schaeffer's Volatility Scorecard (SVS) rests at a lofty 85, indicating that options are fairly priced, relative to the probability of an outsized move on the charts.
At last check, the shares of CSCO have added 1.3% to wink at the $21.10 level, making the stock the only upwardly mobile Dow component this morning. Bolstering the security was a bullish note from Oppenheimer, with the analysts waxing optimistic ahead of next week's earnings release. Specifically, the brokerage firm lifted its earnings-per-share estimates, and upped its price target on the stock to $24 from $22.
Historically, CSCO has topped the Street's per-share profit projections in each of the past four quarters, according to Thomson Reuters.