This morning, I’m recommending a bullish put write on Cisco Systems, Inc. (NASDAQ:CSCO).
The bullishness continued yesterday as the S&P 500 pushed above the 3,000 level again. President Trump praised the U.S.-China trade talks despite China seeking $2.4 billion in sanctions against the U.S. from the World Trade Organization (WTO).
Yesterday, he noted that the deal was “coming along very well.” It appears the administration was able to compartmentalize, separating the sanctions from the trade issues. As a result, the S&P 500 was able to close higher.
The technology sector followed, which is one reason I’m recommending a bullish trade on CSCO.
Tech has Been Making Higher Lows Since August
When the U.S.-China trade war started to intensify in August, the technology sector, as represented by the Technology Select Sector SPDR Fund (NYSEARCA:XLK), dropped. It formed a bottom at just under $76.
Daily Chart of Technology Select Sector SPDR Fund (XLK) — Chart Source: TradingView
Over the last few months, the sector has been gradually recovering. XLK has made higher lows and consolidated around its 50-day moving average. Now it could be heading higher.
I want to take advantage of this technical bullishness, and I see an opportunity for income in CSCO.
CSCO has Solid Support at $46
Unlike XLK, which has been making higher lows, CSCO has consistently retested support at around the $46 level since August. That level acted as support after CSCO missed earnings in August, which only further increased its vulnerability to the negative trade news.
As you can see in the chart below, CSCO has developed resistance just above the $50 level, which is at the top of its August gap lower.
Daily Chart of Cisco Systems, Inc. (CSCO) — Chart Source: TradingView
After retesting support at $46 earlier this month, CSCO is pushing just slightly higher — just like the rest of the tech sector. Earnings season has inflated the premium available in both put and call options, meaning we can collect income on a put write with a strike price well below support at $46.
Since $46 acted as support after CSCO’s last earnings miss — which was also during escalating tensions with China — I’m expecting it to hold up if CSCO’s early November report is negative.
Sell to open the CSCO Nov. 22nd $43 put at about $0.30.
Note: Be sure you are opening the weekly CSCO options that expire on Friday, Nov. 22, 2019.
About Naked Put Writes
If you are holding the option at expiration and the stock is trading below the $43 strike price, you will be put the shares.
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