The bears came out strong Tuesday morning, but the bulls more than bounced back by the end of the day. With tech stuck in the mud, there is a chance that Cisco Systems, Inc. (NASDAQ:CSCO) could provide a catalyst for higher highs on the Nasdaq Composite.
CSCO will report its quarterly earnings after today’s close, and Wall Street is looking for 53 cents a share on revenue north of $12 billion. Over the years, Cisco Systems has become the king of the “penny beat.” Over the past four quarters, it has topped expectations by 2 cents, 1 cent, 2 cents and 3 cents, respectively.
I have followed Cisco Systems for a couple of decades and have traded the name over the years. I do not have a current position in the stock, but its long-time CEO, John Chambers, has done an incredible job of creating shareholder wealth during his tenure with the company.
The recent announcement that he is leaving wasn’t a big surprise, but it made a lot of headlines. His successor, Chuck Robbins, has been groomed to take over the title, and the transition should have no impact on CSCO stock.
With that said, I don’t believe that Chambers will let Wall Street down when CSCO releases its numbers. He likely has one more, possibly two, conference call updates, so I’m expecting him to say some really good things about the company’s future.
The passing of the baton won’t take effect until late July. Chambers will assume the role of executive chairman and will still serve on Cisco’s board. He is a big believer in Robbins and recently said its new incoming CEO can help the company to grow faster than he could have.
I have been watching CSCO’s chart since last week for a possible earnings trade, but the options have become a little pricey going into the announcement.
The bullish side of me was thinking that CSCO shares could make a run past $30, and I was targeting the Jun $30 calls for 60 cents for a possible trade.
The May $30 calls for 49 cents expire this week and would require CSCO stock to make a move above $30.49 just to break even on the trade.
The chart shows that shares are holding their 50-day moving average, but that indicator is curling lower. CSCO stock has a chance of moving 5% based on the company’s earnings results.
The Jun $28 puts for 44 cents could be used to play a downside move in the stock or to create a strangle option trade with the Jun $30 calls.
There are also weekly options available to trade on CSCO. The combinations of trades are intriguing, but I will likely be sitting on the sidelines despite how tempting they look.
InvestorPlace advisor Rick Rouse is offering a special free report, “The 5 Golden Rules of Options Investing,” that reveals his rules for options trading success that will help you make double- and triple-digit profits in the months ahead no matter what the market has in store. Just click here to read it right now.
Whether you’re new to options or have years of experience, the trading advice Rick will share can help you lock in bigger gains, find new winning ideas, wring the risk out of your trades and become a more confident and successful options investor. Click here now to download your FREE copy of The 5 Golden Rules of Options Investing.
