Calls Heat Up as Cisco Systems, Inc. (CSCO) Taps Multi-Year High

Calls are hot after Cisco Systems, Inc. (CSCO) rallied to an eight-year high

by Kirra Fedyszyn

Published on Jul 20, 2016 at 3:22 PM
Updated on Jun 24, 2020 at 10:16 AM

Tech stock and Dow component Cisco Systems, Inc. (NASDAQ:CSCO) is riding on tailwinds from sector peer Microsoft Corporation's (NASDAQ:MSFT) well-received earnings, adding 2.2% to trade at $30.57 today. In fact, the stock is helping the Dow toward a ninth straight day of gains, and yet another record high. Speaking of highs, CSCO tapped a fresh eight-year peak at $30.68 earlier, and this upbeat price action has the stock's options pits buzzing, too.

CSCO calls have been changing hands at four times their average intraday rate, and outpacing puts at a nearly 3-to-1 clip. In fact, with 125,000 contracts on the tape, call volume is running in the 99th percentile of its annual range. The most popular strikes for the day are the August 31 and June 2017 32-strike calls, which have both seen some large blocks traded. Specifically, a sweep of 25,041 August calls may have been sold to open, while it appears a block of 10,000 June calls was bought to open.

A preference for calls is nothing new in CSCO's options pits. According to the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.61, call open interest easily outweighs put open interest among options expiring in three months or less. Moreover, this ratio sits lower than 66% of the past year's readings, indicating near-term traders have been more call-heavy toward CSCO than usual of late.

It looks like an attractive time to buy premium on the stock's short-term options, too. CSCO has a Schaeffer's Volatility Index (SVI) of 21% -- in the low 17th percentile of its annual range -- suggesting historically low volatility expectations are being priced in. Meanwhile, its Schaeffer's Volatility Scorecard (SVS) stands at a healthy 81. That suggests the options market has underpriced CSCO's ability to make outsized moves over the past year.

Outside of the options pits, optimism surrounds the blue-chip stock. While short interest rose by 9% over the last two reporting periods, these bearish bets still account for less than 1% of CSCO's available float. And of the 25 analysts providing coverage, 17 recommend buying the stock, and only one suggests selling.

From a technical standpoint, Cisco Systems, Inc. (NASDAQ:CSCO) has had an impressive year so far, adding 12.5%. The shares have been rocketing higher since a pullback to their 20-week moving average in late June -- and, in fact, this trendline has been providing solid support for CSCO since mid-February. Given these strong gains, CSCO's 14-day Relative Strength Index (RSI) has risen to 65, on the verge of overbought territory.

CSCO Weekly Chart July 20

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