Name Those Trades – $CSCO: Chuck Foolery

by CC August 12, 2015 12:27 pm • Commentary

Earlier we previewed CSCO’s fiscal Q4 earnings report due tonight after the close (read here). Similar to Alibaba yesterday we want to offer a couple different trades that offer protection in an increasingly volatile environment. One stock replacement and one hedge against long shares:  

Stock Alternative/ Replacement:

If you are long shares or were thinking about getting long at current levels into the print, it could make sense to define your risk using options (in lieu of stock) in a market that is shooting first and asking questions later on disappointing news:

Hypothetical trade in lieu of 100 shares of CSCO ($27.55):

Buy Sept 27 / 30 Call Spread for 1.10

-Buy 1 Sept 27 call for 1.30

-Sell 1 Sept 30 call at .20

Break-Even on Sept Expiration:

Profits: up to 1.90 between 28.10 and 30 with max gain of 1.90 above 30

Losses: up to 1.10 between 27 and 28.10 with max loss of 1.10 below 1.10

Rationale:  This call spread is already in the money by .55, leaving the break-even up only 2%, which could be achievable under more than a few potential outcomes in the coming 6 weeks. With this trade though, you define your potential losses to be only 1.10 max and any big moves lower this trade is much better than stock.


Protection against 100 shares of CSCO ($27.55) OR outright bearish bet:

Buy to open 1 Aug 14th weekly 27 put for .49

Protection below $26.51, down 3.75%

Rationale – this is disaster protection and will save your stock one for one on any move lower than 26.51. It expires this week so this is simply if you are worried about the stock going into the event, not longer term. If you are long stock this trade allows you to hold it through the event without a ton of sacrifice.