Cisco Systems (CSCO) is scheduled to release its latest earnings report after Thursday’s close, and the results could give tech a lift if they come in better than expected. While “new tech” has been hot over the past few years, “old tech” is still shining, given the recent earnings results from Microsoft (MSFT) and Intel (INTC).
Wall Street is looking for Cisco to earn 56 cents per share on revenue of $12.65 billion. The high estimate has the company earning 59 cents per share on revenue north of $12.8 billion. The lowball number has Cisco earning 55 cents per share on revenue of $12.55 billion. To put it another way: Analysts are expecting something between a 3-cent beat and a 1-cent miss.
I doubt Cisco will miss expectations, as it has beaten estimates in each of the past four quarters.
Shares have been in a strong uptrend following September’s low, and the push towards $29.50 in October. CSCO pulled back to its 200-day moving average this month, which could be considered either a gift or a warning sign heading into the company’s announcement.
The 50-day moving average is also in a strong uptrend and is on course to form “golden crosses” with the 100- and 200-day moving averages. A close below $27 on an earnings miss would negate the bullish setup.
CSCO Stock Chart
While the near-term November options look tempting for a quick trade, I have been watching the December and January option chains for a possible play on Cisco.
The CSCO December $29 calls have nearly five weeks before they expire and could be used to play a possible run to $30 by the end of the year. Shares previously failed to clear resistance at $29.50, and a move above this level should lead to a run past $30. If so, the aforementioned call options would double, as they would be worth at least $1.00.
Bullish traders could also target the CSCO January (2016) $30 calls, as they would give the trade two months to play out. These options would double if Cisco shares trade past $30.68, technically, by mid-January 2016.
Both options are actively traded, very liquid and have large open interest. This means that the bid/ask spread is only a penny or two, and the risk/reward is clearly visible.
If shares stay below $29 by mid-December or below $30 by mid-January, however, these options will expire worthless. While I am still on the sidelines ahead of CSCO’s announcement, I’m keeping both aforementioned options on my radar as potential trades.
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