Go Long Cisco Systems, Inc. (CSCO) Stock for Free

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Cisco Systems, Inc. (NASDAQ:CSCO) has had an exciting start to 2017. It rallied 15%, then gave most of it back. Now it’s clawing its way back, perhaps trying to fill the giant gap to $33 per share.

CSCO is a proven survivor. Management doesn’t give Wall Street too many reasons to short its stock. So the recent drop in opinion presents an opportunity.


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Markets are near all-time highs, so I prefer to not risk money buying stocks. Instead, I prefer to incorporate buffer zones between the current price and my risk.

My idea of selling risk is simple: If I like Cisco stock here, then I would like it even better 12% lower. Fundamentally, the stock is cheap relative to its competitors. It carries a low price-to-earnings ratio and a very humble price to book. So I could say it has shed whatever fluff it may have had above $34.

Furthermore, analyst expectations are not excessive. Meaning their ratings are spread evenly about the top three ratings.

CSCO Stock Trade Idea

The Thesis: If CSCO stock falls 13%, I am willing to own it. So I will sell downside risk against my level to generate income. I do this so I don’t need to chase a price target. I can profit even if price falls through November as long as price stays above my strike.

On May 8, the price bumped against a repeat support level. This makes it important to hold. Otherwise, if bulls lose it, bears could gain momentum to retest $29.

The Trade: Sell the CSCO Nov $28 naked put and collect 50 cents per contract. Here I have a 90% theoretical certainty that I will retain my maximum gains. Otherwise if the stock falls below $28, then I own the shares and would accrue losses below $27.50.

Selling naked puts is not for everyone, and for those who prefer more tepid risk I can use spreads instead.

The Alternate: Sell CSCO $28/$27 credit put spread where I have the same chances of success but with more limited risk. But the compromise is not that big since the spread can still deliver 15% yield. Compare this with risking $32 per share without any room for error then hoping that CSCO stock rallies 15% just to match the performance of the spread.

Learn how to generate income from options here. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2017/06/short-cisco-systems-inc-csco-stock-free/.

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