Options Trading News

August 14, 2013  Wed 2:45 AM CT

A huge bearish strategy led the option activity in Cisco yesterday ahead of this afternoon's earnings report as shares traded just off their highest levels in nearly five years.
optionMONSTER systems show that a trader sold 40,000 January 29 calls for $0.73, below the bid price at the time, and bought 40,000 January 24 puts for their ask price of $1. Volumes exceeded the previous open interest at each strike, indicating that this is new activity.

This combination trade could be an outright bearish play that is looking for the CSCO to fall below $24 by the start of next year. But it is more likely a protective collar to hedge a long-stock position, limiting potential gains and losses. (See our Education section)

CSCO finished yesterday down fractionally at $26.32, a day after its highest close in three years. Shares are below a long-term resistance level at $27.50 that has been in place since December 2007. The network-technology giant is scheduled to report quarterly numbers after the closing bell today.

Total option volume in CSCO was just shy of 267,000 contracts yesterday, compared to a daily average of 72,204 in the last month.
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As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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