Cisco bull envisions spring breakout
David Russell | email@example.com
optionMONSTER's Heat Seeker tracking system detected the purchase of about 16,000 June 22 calls for $0.34 and the sale of an equal number of June 19 puts for $0.45. Volume was more than triple open interest in both strikes.
The trade resulted in a credit of about $0.09 and is highly leveraged to upside in the networking-technology giant. If CSCO rallies, the calls owned will appreciate and the puts sold short will lose value. The opposite will happen if it drops, so they have downside risk as well. (See our Education section)
The main way the strategy differs from owning shares is that it will track the equity less closely as time passes, and expire worthless if it the stock remains between $19 and $22 for the next three months. That may be unlikely because the earnings will be release after the bell on May 9, which has the potential of triggering a big move.
CSCO is trading at $20.44 this afternoon, up 0.29 percent on the day and 31 percent in the last six months. The company has had strong earnings reports the last three quarters, fighting its way back from a disastrous performance in the first half of 2011.
Shares have been consolidating around their current range since mid-January, and today's bullish trade suggests that a breakout is expected soon. It accounts for more than half the activity in CSCO so far in the session, according to the Heat Seeker.