Heavy call volume in
Cisco Systems Inc. (NASDAQ: CSCO )
suggests at least one investor could either be expecting upside in
the stock or closing out a moderately bearish position. Shares of
the network devices company climbed slightly during morning trading
roughly one week before earnings figures are due.
By 10:40 a.m. EDT, more than 27,000 at-the-money August 24 calls
had changed hands for an average price of 60 cents per contract.
Current open interest in these front-month options is roughly
83,000 contracts. While the number of contracts traded on the tape
so far this morning is not extraordinary compared to the open
interest level, it's interesting we're seeing heavy volume out of
the gate thanks to active buying.
Investors who bought these calls to open are making a bet that
the stock will be trading higher than $24.60 at August options
expiration in two weeks. If investors opened long call positions,
these trades could theoretically make unlimited gains if the stock
continues to the upside. This long call trade limits maximum loss
to the premium paid per contract.
Those investors who could have bought to close these calls most
likely did so on a bet that the stock will be hard-pressed to drop
any further during the near term. Investors who paid 60 cents per
contract could have taken either a slight loss or profit depending
on the original credit of the open short call position.
CSCO is due to announce earnings figures on Aug. 11 after the
market closes. Analysts estimate earnings of 42 cents per contract.
Without any news from CSCO on the wires today, the stock has gained
11 cents to $23.93 so far this morning. The stock dipped to a low
of $21 at the beginning of July, and has since climbed roughly 14%
to its current level.