Cisco Systems, Inc. (
) has been hit with an assault of pre-earnings option activity,
today, with 149,000 contracts changing hands so far -- already
the stock's usual daily volume of around 47,000 contracts. With
CSCO reporting its fourth-quarter earnings after the close today,
let's take a look at the various expectations surrounding the
shares ahead of the event.
The brokerage bunch weighs in
For the fourth quarter, analysts are predicting a profit of 42
cents per share for CSCO. Historically speaking, the stock has a
solid history in the earnings spotlight, beating the consensus
estimate in each of its last four reports.
In fact, analysts are highly optimistic about CSCO. According to
, the stock has earned a whopping 31 "buy" or better ratings, five
"holds," and not one "sell." In the same bullish vein, CSCO's
12-month price target is pegged at $30.28 -- a 25% premium to the
stock's close at $24.31 on Tuesday. In fact, CSCO has not been in
the $30 ballpark since late 2007.
With such high hopes levied toward the shares, any earnings
misses or lowered guidance could result in a tidal wave of
downgrades and/or price-target cuts for CSCO, devastating the stock
on the charts.
So analysts are smitten, but what do option players
Ahead of tonight's earnings, option players are trending toward
the bearish end of the spectrum. CSCO's Schaeffer's put/call open
interest ratio (SOIR) of 0.86 ranks in the 68th percentile of its
annual range, revealing that traders are more skeptical toward CSCO
than usual lately.
In the same bearish vein, CSCO sports a 10-day International
Securities Exchange (ISE) put/call volume ratio of 0.70, which
falls above 78% of all other readings taken during the last year.
In other words, speculators on the ISE have initiated bearish bets
on CSCO at a faster rate just 22% of the time during the past 12
This trend has continued today, with 63,000 puts traded so far
-- three times CSCO's expected single-session put volume of around
The August 24 put has claimed the bulk of the action today, with
12,152 contracts crossing the tape -- the majority of which traded
closer to the ask price, indicating they were likely purchased.
However, with over 28,000 contracts currently open at this strike,
we cannot yet confirm that these are fresh bearish positions. With
CSCO trading around $23.62, though, these puts are in the
Meanwhile, peak put open interest of 40,328 contracts can be
found at the August 23 strike, with another substantial
accumulation of 24,553 contracts at the August 22 put. Conversely,
peak call open interest is at the August 24 call, with a staggering
80,000 contracts in residence. Going forward, CSCO could be pinned
between options-related support and resistance.
What do CSCO's technicals tell us?
CSCO has had a rather uneventful 2010, adding just 1.6%
year-to-date. Since May, the shares have been trapped in a
relatively tight trading range between $22 and $24. Adding an
additional layer of technical pressure on CSCO has been its 50-week
moving average, which is conveniently located right around $24.
Let's put CSCO's fundamental, sentiment, and technical
With high expectations from analysts heading into tomorrow's
earnings report, any sort of "miss" on CSCO's part could spell
trouble for the shares. In fact, with the stock docked beneath
heavy technical resistance, CSCO may have a hard time pulling ahead
on the charts
its numbers impress. Plus, with a massive accumulation of call open
interest just above the stock, an earnings miss could send these
bulls scrambling for the exits, creating a fresh wave of selling
pressure on CSCO.
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