Cisco (CSCO) Earnings Trade Ideas

by riskreversal November 16, 2016 1:23 pm • Trade Ideas

Yesterday, we previewed Cisco’s (CSCO) fiscal Q1 earnings due today after the bell. I wanted to follow up with some trade ideas for those that are long or wish to play directionally. Currently the options market is implying a move just shy of about 4% between now and Friday. The other thing to note is that there’s a heavy skew in the options to the downside, meaning upside calls are fairly dollar cheap in comparison with downside puts. Those factors can help when looking at possible trade ideas and overlays.

First, let’s look at stock alternative, defined risk bullish positioning. One level to keep in mind on the upside is the stock’s 10 year high from 2007 at 34.25. That is well below the dotcom bubble highs in March of 2000, so there’s really no resistance above 34.25. That seems like a good spot to target.

Stock Alt/ Bullish

CSCO (31.60) Buy the Dec 32/34 call spread for 55 cents
  • Buy 1 Dec 32 call for .66
  • Sell 1 Dec 34 calls at .11

Break-Even on Dec Expiration:

Profits: between 32.55 and 34 up to 1.45 with max gain of 1.45 above 34.

Losses: up to 55 cents between 32 and 32.55 with max loss below 32

Rationale – This trade risks less than 2% of the stock price, breaks-even at $32.55, up about 3%, a little less than the implied move and offers nearly a 3 to 1 payout up towards the 2007 high.


Bearish or near term hedge:

For those already long stock and looking for 2 day protection down to support at $30, or looking to make a dollar cheap bearish bet into the print:

vs 100 shares of CSCO (31.60) Buy the Nov 31.5/30/28.5 put fly for .30
  • Buy 1 Nov 31.5 put for .57
  • Sell 2 Nov 30 puts at .15 (.30) total
  • Buy 1 Nov 28.5 put at for .03

Break-Even on Nov Expiration (Fri):

Profits: up to 1.20 between 31.20 and 28.80, with max gain of 1.20 at 30.

Losses: up to 30 cents between 31.20 and 31.50 & between 28.80 and 28.50, max loss of 30 cents above 31.50 and below 28.50.

Rationale – This trade protects against 1.20 in potential losses if the shares are below 31.20 and above 28.80. It targets 30 as a support level so this trade is only for those that want to lock in profits in case of a decline along with the expected move, but aren;t looking for disaster protection. At .30 it’s also a good way for those that are simply bearish to express that view without too much premium at risk.