In wake of rebound from disappointing earnings, network equipment maker can be played using options.
Cisco (CSCO) – Get Cisco Systems, Inc. Report has drawn interest from investors since its shares tanked after the company reported fiscal first quarter results.
While the stock can be viewed as a tech value stock, investors could use an options strategy to target some gains, Stephen “Sarge” Guilfoyle wrote in a recent Real Money Pro column. The three technical indicators, RSI, Full stochastics Oscillator and daily MACD are all indicating that the stock is technically overbought.
“We do have a cup-with-handle pattern that bears a $59 pivot,” Guilfoyle wrote recently. “That, using my method, would place the initial target up around $72. One might think that CSCO will at some point experience some profit taking and could test the 21 day EMA.”
After Cisco reported its earnings in November, the stock dipped by over 5% on Nov. 17. Since its earnings report, the company’s stock has risen by 16% as it remains the largest supplier of computer networking gear.
While the company’s earnings were generally “OK,” by Dec. 8, CEO Chuck Robbins said Cisco’s web scale business increased by 200% at the Barclays Global Technology, Media and Telecommunications Conference. Investors regained their interest by Dec. 14.
Guilfoyle’s approach? Simultaneously purchase one CSCO February 18th $65 call for roughly $1.40 and sell one CSCO February 18th $60 put for about $1.40.
The trades even out so the trader doesn’t spend anything up front. However, if shares go higher, the trader can buy 100 shares at $60 at expiration. If the stock falls, the trader is on the hook for $60, better than the possible last sale price at expiration.
