Players have been sizing up Cisco (CSCO) ahead of earnings. Shares are up one penny to $23.03 and 271,000 options traded so far (178K calls). Feb 24 calls are the busiest. 36K changed hands. Meanwhile, more than 25K April 21 puts traded. The action includes a bullish April 21 - 24 risk reversal (bought April 24 calls, sold April 21 puts), bought at 25 cents, 10000X. Another large spread, a three way, involved the April 24 - 46 call spread and April 21 puts, at four cents, 10400X. It was crossed and tied to shares on a 30 delta. The overall tone of trading seems to reflect expectations for a good report. Meanwhile, a volatility skew between Feb (30.5) and Mar (26.3) hints at a possible 4.1 percent earnings gap move when Cisco reports after the closing bell.
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Cisco Systems Inc (CSCO) $23.07 +0.22%
Posted on February 3rd, 2010 3:31 pm
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9 users commented on " Cisco Systems Inc (CSCO) $23.07 +0.22% "
Follow-up comment rss or Leave a Trackbackyou catch any big money bearish plays on cisco?
I think the call spread + puts was initiated by a spread seller, put buyer, which would be bearish. Might be a hedge. Sentiment seems mixed to me.
Awesome research Fred. $msh has been performing nicely into $csco earnings as well.
So bored today ….just filed my lil $rnd call…here’s hopin in APR on poor $PFE, but it was ex-divi today sou couldn’t resist.
Good luck investing everyone….
meh… doesn’t look like anything spectacular from csco. Don’t think i’ll get my 6% pop or drop. I’ll probably close out my position in the morning. Hopefully Chambers says something great or something stupid on the call and makes the stock move a lot… lol.
Ran up to $24 on guidance. There’s still hope!
After Hours High: $ 24.05
Judging on what happens tomorrow I might ditch the 22 put and hold on to the call spread and the 21 put that I sold. As it stands now, I wont start seeing green until 24.29… and I hit max profit at 25.07. 52 week high on CSCO is 25.10, so there might be some resistance up there.
Fred, great analysis on the potential move for csco. Can you give more detail on “a volatility skew between Feb (30.5) and Mar (26.3) hints at a possible 4.1 percent earnings gap move when Cisco reports after the closing bell.” ? I don’t understand. Thanks
i was wondering the same
Hi, the implied volatility skew between the front month and the next month (in this case Feb and March) can help gauge the possible earnings move. The options market is efficient a lot of the time and the options prices will take into account the potential for movement around earnings — create higher implied volatility in the front month. Henry has developed a spread sheet to compute the possible earnings gap move. It works best on very actively traded names like CSCO, AAPL, GOOG, etc. It still has some bugs, but we might make something available for subscribers in the future. good questions.