Yesterday we offered some trade ideas into Cisco (CSCO) earnings report, one a defined risk stock alternative and one a hedge/bearish. With the stock down 5% today following the report we wanted to check in on on those ideas and talk trade management.
First was the defined risk Bullish/Stock Alternative:
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
With the stock 29.95 this is basically worthless. But versus the stock down 1.60 that’s less of a loss and why we detail these trades, especially near highs in a stock because when a breakout fails, it can be severe.
The second trade idea detailed was for those already long looking to hedge shares, or for those outright bearish. This idea targeted 30 on the downside and the stock did just that:
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
With the stock 29.95 this is worth about 1.15 vs the .30 initial risk. For those that were long this provided a nice buffer. For those simply bearish, a nice win vs the risk. Either way, the max gain possible for this is 1.50, or only about .35 more from now until tomorrow’s close. In order for that to happen the stock needs to pin at 30. So probably best to close this and take the money on either the directional play of the hedge.