Cisco Systems (CSCO) has been accelerating to the downside recently as more and more major reversal patterns appear around the market. The break at this level (and a completed head-and-shoulders pattern) makes it much more likely that the stock will fill the gap and reach $21 per share. Traders are fairly split on this stock right now based on the chain sheet, but there is an unusually large amount of volume in the out-of-the-money puts expiring in December. This conforms to our analysis as well. We recommend opening a new position here, as selling could accelerate even more this week as traders deal with the budget/debt ceiling crisis and the labor report.
As usual, set a limit order to avoid paying too much for the option. Market orders can drive the price up very quickly and increase the hurdle required to get to a profitable position.
Recommendation: ‘Buy to open’ the CSCO November 23 Puts (CSCO131116P00023000) for a maximum price of 92 cents.
InvestorPlace advisors John Jagerson and S. Wade Hansen are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next trade and get 1 free month today by clicking here.