Options Bulls Surround Streaking Cisco Ahead of Earnings

The Dow stock looks to halt its streak of post-earnings bear gaps

Managing Editor
May 12, 2020 at 2:46 PM
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For better or worse, the only Dow name stepping into the earnings confessional this week is Cisco Systems, Inc. (NASDAQ:CSCO), with the tech giant set to report first-quarter earnings after the close tomorrow, May 13. Ahead of the event, CSCO options traders are coming out in droves.

By noon, 60,000 Cisco calls have already changed hands, quadruple the average intraday amount and more than triple the number of puts traded. Leading the charge is the May 45 call, but there are new positions are being opened at the weekly 5/22 47-strike call. Buyers of that latter call are banking on a possible CSCO post-earnings rally to last through the next 10 days, when the options expire.

Looking back at the past two years, the stock has a choppy history following quarterly reports. Of the eight previous reports, the last three have been negative, including a 5.2% swing lower in February. The security averaged a 5.2% swing, regardless of direction, the day after its last eight reports, and this time around the options pits are pricing in a much larger 9.2% shift. 

This preference for calls has been the norm in recent weeks, though. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), nearly five calls have been bought for every put during the past 10 days. This resultant 10-day call/put volume ratio ranks in the 88th percentile of its annual range, indicating a healthier-than-usual appetite for calls in the last two weeks.

While Cisco stock is up 1.6% today to trade at $44.01, it's still wrangling with a 8% year-to-date deficit, despite 63% of analysts holding "buy" ratings and not a single "sell" to be found. And while the shares are eyeing their fourth straight win today, they remain stuck between a trendline lower and their 1,000-day trendline. 

Cisco Stock Chart

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