Cisco Bear Places 6-Figure Bet After Downgrade

William Blair cut CSCO's rating to "market perform"

Jun 12, 2019 at 10:52 AM
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The shares of Cisco Systems, Inc. (NASDAQ:CSCO) are pulling back from 18-year highs, after analysts at William Blair downgraded the blue chip to "market perform" from "outperform." It's the first time the brokerage firm has adjusted its CSCO rating in six years, citing concerns about increasing competition and growth in fiscal 2020. As such, Cisco stock is set to snap a six-day winning streak -- its longest since March -- and option bears are active this morning.

CSCO stock was last seen 1% lower at $56.51. The equity has rallied roughly 25% so far in 2019, and after a recent bounce off its 100-day moving average, notched a fresh high of $57.56 just yesterday -- territory not charted since November 2000. However, the $57 region acted as a roadblock for CSCO on several occasions already this year, and could once again serve as a technical hurdle.

CSCO stock chart june 12

Cisco options are running hotter than usual after the analyst note. About 12,000 calls and 8,500 puts have changed hands so far -- about 1.5 times the average intraday volume. Most active is the August 55 put, which saw a block of more than 3,000 contracts likely bought to open for $1.77 each, or just over $533,000 (number of contracts * premium paid * 100 shares per contract). The puts will be profitable if CSCO stock sinks beneath the $53.23 level (strike minus premium paid) by the close on Friday, Aug. 16, when the options expire.

Now is an opportune time to be a short-term option buyer on Cisco. The equity's Schaeffer's Volatility Index (SVI) of 21% is in just the 20th percentile of its annual range, suggesting near-term options are pricing in relatively low volatility expectations at the moment.

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