The Technical Levels Cisco Options Traders Should Watch Ahead of Earnings

Cisco Systems, Inc. (CSCO) could find options-related support near $30, and resistance around $32

Feb 14, 2017 at 11:36 AM
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Communications and networking specialist Cisco Systems, Inc. (NASDAQ:CSCO) is slated to report earnings after tomorrow's close, and ahead of the event, the Dow stock is trading down 0.4% at $31.83. Looking back over the past eight quarters, Cisco has averaged a single-session post-earnings swing of 4.7%, with the stock's price action resolving to the downside in the past two quarters. This time around, the options market is pricing in a slightly bigger 5.2% swing -- regardless of direction -- and it seems short-term speculators have shown a preference for calls over puts in CSCO's options pits.

Specifically, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.55 is ranked lower than 88% of all comparable readings taken in the past year, meaning traders are more call-heavy than usual toward options expiring in three months or less. Plus, CSCO's front-month gamma-weighted SOIR is docked at 0.30, indicating near-the-money calls more than triple puts among options residing in the standard February series -- which expires at this Friday's close.

Drilling down on recent activity in CSCO's options pits reveals the front-month February 31.50 and 33.50 calls, as well as the 28.50 put, have seen the biggest increases in open interest over the past 10 sessions, with a collective 75,500 contracts added. The bulk of the activity occurred on Friday, Feb. 3, when one options trader appeared to have initiated a long call spread with the 31.50 and 33.50 strikes, and then sold to open the 28.50 puts to lower her cost of entry. If this is case, the goal is for CSCO to rally right up to $33.50 by this Friday's close -- territory not charted since November 2007 -- while the short put cushions any retreats below $31.50.

And while put open interest is historically low right now -- the 457,925 contracts currently outstanding are in the 14th annual percentile -- peak open interest in the front-month series is located at the February 30 put, where 36,135 positions reside. This could translate into an options-related foothold for CSCO, as the hedges related to these bets are unwound ahead of Friday's close. Additionally, $30 currently corresponds to the stock's historically supportive 200-day moving average, while the $30.50 mark represents a 23.6% Fibonacci retracement of CSCO's May-to-September surge, and just below that is the 38.2% retracement level at $29.60.

To the upside, Cisco Systems, Inc. (NASDAQ:CSCO) stock could meet headwinds near $32, site of its Feb. 13 nine-year high, as well as an area that served as a stiff ceiling in September and November. Additionally, this strike is home to huge call open interest in both the February and March series, with a combined 70,783 contracts outstanding. Just as heavy put open interest can often help support shares, a lofty accumulation of call open interest can serve as resistance.

csco stock daily chart

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