Cisco (CSCO) Idea Updates

by Dan August 25, 2016 1:48 pm • Trade Updates

Into Cisco (CSCO) earnings last week we looked at an idea for those looking to be long but with defined risk, and also an idea for those already long looking for potential leverage. I wanted to check back in on CSCO and see how the trade ideas fared and what to do next with those.

First, there was the bullish idea:

CSCO (30.50) Buy the August 32/ October 31 vertical call calendar for .60

  • Sell 1 Aug 32 call at .15
  • Buy 1 Oct 31 call for .75

The August calls expired worthless and did their job. And now the position is simply an October 31 call, which is in the money with the stock at 31.35 and trading about .85 vs the .60 cost basis. Now is a good opportunity to further reduce risk while continuing a bullish positioning. The Oct calls can be spread into a vertical by selling an upside call in the same month. The 32’s are about .37 and the 33’s are about .13. The 33’s are probably the better sale as that’s essentially free money, but it doesn’t help the premium at risk situation that much. Therefore I prefer looking a little closer and rolling it as a calendar, selling the Sept 32 calls at 17c. that reduces the premium at risk from the original trade to .43. If CSCO is at or above 32 on Sept expiration that would be more than a double, and if at or below 32 on expiration, it could then be rolled again out to October.

The second trade idea was for those that were already long. Here was that idea for leverage:

Against 100 shares of CSCO (30.50) Buy the Sept 32/33 1×2 call spread for .05

  • Buy 1 Sept 32 call for .3
  • Sell 2 Sept 33 calls at .15

With the stock 31.35 this is worth about 10c. So nothing to do here at the moment. The key for this overlay is if the stock can creep up towards 32 by Sept expiration. If that’s the case in the near term this will become a bigger winner as it’s about +13 deltas right now. The issue if the stock doesn’t creep higher and stays in this range below 32 is that those deltas will get smaller and eventually become zero. So for this trade you want the stock to either get towards 32 in the near term, or get above 32 on expiration. If the stock is above 32 on expiration it will add whatever amount above 32 it is as additional profit to the long stock, less the .o5 paid. (e.g. if the stock is 32.50, this overlay adds .45 in profits. At 33 it adds .95 in profits. So this is one to keep an eye on in the near term if the stock approaches 32 as it maybe be worth selling for a profit before the stock is at 32 if time is running out and it doesn’t look like a new high above that level is likely in the next few weeks.