Cisco Systems, Inc. (NASDAQ:CSCO) shares are on the ropes following an underwhelming earnings release. Sellers have taken CSCO stock down 7.5% on heavy volume in early morning trading. Virtually all of the tech conglomerate’s 2017 gains have been lost in one fell swoop.
Chief among the disappointing revelations were Cisco’s revenue forecasts for its current quarter which fell well short of estimates. The company also said it would eliminate 1,100 more jobs.
On the technical front, today’s down-gap was quite damaging. Heading into earnings CSCO was nestled close to its 52-week high. Now it sits below every major moving average. It has been over a year since the stock has been submerged this far beneath its 200-day moving average.
Unfortunately, the stock now rests in no-man’s land, which makes it difficult to anticipate its next move. The closest major support zone rests near $30, but that’s still a fair distance away. And resistance sits near $32. Until the stock develops a more compelling setup, I wouldn’t fault you for looking for opportunity elsewhere.
But if you have your heart set on playing CSCO, the options market provides a few avenues for placing your bets.
The CSCO Stock Trade Pick ‘Em
Here’s a pair of trades to consider for bulls and bears alike.
If you think the stench of yesterday’s earnings oopsie continues to hang over Cisco shares for the coming month, then consider selling out-of-the-money call options. As long as the stock doesn’t rise too much, the calls will expire worthless allowing you to pocket the initial premium received.
Sell the Jun $32 call for 35 cents or better. You will capture the max reward of 35 cents if CSCO sits below $32 at expiration. If you’re not willing to short the stock with an effective cost basis of $32.35, then buy to close the call option if it sits in the money at expiration.
If you’re a willing buyer of CSCO shares at lower prices, then root for another down day or two in the stock to increase the appeal of selling naked puts. Right now, there isn’t sufficient premium in June puts to merit a trade. But, if the stock can fall enough to lift the June $30 put to around 40 cents, then it’s worth selling.
To be clear, if you’re willing to go bullish on CSCO, then sell the June $30 put for 40 cents or better if possible in the coming days.
At the time of this writing, Tyler Craig had no positions in any of the aforementioned securities.
