Cisco Systems Call Options In Demand Ahead of Earnings

Cisco Systems will report earnings after the close on Wednesday, May 17

May 16, 2017 at 2:52 PM
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Though earnings season is quickly winding down, there are still a few heavy hitters left to report. Among those is Cisco Systems, Inc. (NASDAQ:CSCO), with the tech name slated to unveil its quarterly results after tomorrow's close. Shares of CSCO have a mixed post-earnings trading history, but options traders have shown a preference for calls over puts on the Dow stock. However, diving deeper reveals not all CSCO options traders have used the calls to take a bullish stance.

Drilling down, peak front-month open interest is found at CSCO's May 34 and 35 calls, where a collective 60,485 contracts reside -- or roughly 10% of the stock's total call open interest. Data from the major options exchanges confirms a significant amount of sell-to-open activity at the lower-strike call, while the bulk of the action on the higher strike has been buy to open.

The goal of the call seller is for CSCO to remain below the strike through options expiration, at this Friday's close. Conversely, the call buyer is hoping the stock breaks out above the strike by expiration. The $34-$35 neighborhood has been significant to CSCO for some time, with the shares failing to notch a weekly close north of $34.50 since early 2001 -- although Cisco stock did hit a 16-year intraday high of $34.60 earlier this month.

More recently, there's been a definitive bullish tilt toward CSCO stock at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). In fact, the equity's 10-day call/put volume ratio of 2.70 ranks above 87% of comparable readings taken in the past year, meaning calls have been bought to open relative to puts at a near-annual-high clip in recent weeks.

Today, calls are outpacing puts by a roughly 3-to-1 margin, and the 35 strike is once again in focus. Specifically, it looks like one Cisco Systems options trader may be selling to close her May 35 calls and rolling them out to the weekly 6/2 series. At last check, CSCO stock was trading fractionally higher at $34.24.

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