Put Players Target Another Earnings Meltdown From Cisco Stock

Following the company's last earnings release in May, Dow stock Cisco Systems, Inc. (NASDAQ:CSCO) got hammered, dropping 7.2% in the subsequent session. This marked the third time in the last four quarters the shares fell in the session after earnings. Since the most recent sell-off, CSCO has been mostly consolidating between the $31-$32 range, which is home to both the equity's 50-week moving average, and a 23.6% Fibonacci retracement of its 2016 low and 2017 peak. 

Below this area is the round $30 level, representing a 38.2% Fibonacci retracement of the 2016 low and 2017 high. This would be roughly a 6% drop from Cisco's current perch of $31.95. With the company scheduled to report earnings after the close tomorrow, the options market just happens to be pricing in a 5.8% swing for CSCO on Thursday. If the equity breaches these levels after earnings, it could send the shares into free fall. 

And that's exactly what some options traders appear to be betting on. Two of the most popular options during the past two weeks, based on increases in open interest, were the August 31.50 and 32 puts. Data from the major options exchanges confirms buy-to-open activity at each, meaning traders are betting on Cisco falling below the strikes by this Friday's close, when the contracts expire. 

Further down the list, buy-to-open activity was also detected at the October 25 put. This would suggest speculators are expecting a nearly 22% decline from CSCO over the next two months. The stock hasn't traded below $25 since February 2016. 

It's a different story in today's trading, though. Call volume is running at six times the expected pace, with more than 93,000 of the contracts crossing, compared to fewer than 20,000 puts. In fact, today's put/call volume ratio of 0.21 is just 2 percentage points from a 12-month low. The most popular option today is the August 33 call, which is seeing a mix of buying and selling. 

Meanwhile, analysts have remained very bullish on Cisco, even after last quarter's disappointing earnings report. Of the 19 brokerages covering CSCO, 14 say to buy the stock, while there are zero "sell" ratings to be found. As such, any post-earnings weakness could be exacerbated by a round of bearish analyst attention.