Call Options Or Put Options On Cisco Systems (CSCO)?

| May 14, 2014 | 0 Comments

CSCO optionsCisco Systems (CSCO) reports earnings after the close today, one of the last big companies to release quarterly results for the period. The networking giant is a member of the Dow Jones Industrial Average.

CSCO shares are currently trading at $22.94, up 3.5% year-to-date. The stock’s down 11% from the 52-week high of $25.88 and is 15% above the 52-week low of $19.90.

Is this an opportunity to buy call options on CSCO due to the stock’s attractive valuation? Or should you buy put options on CSCO because IT hardware companies are generally in trouble?

The bulls make a convincing argument…

CSCO remains a bellwether tech company. The router and network hardware giant still generates almost $50 billion a year in sales and over $8 billion in profits.

Despite the company’s long track record of impressive performance, the stock is only trading at 10.9x projected earnings. For a consistent, dividend paying company, that’s really cheap.

Speaking of dividends, the current yield on CSCO’s shares is 3.3%. Income investors are sure to snatch up the stock if it should fall due to the attractive yield.

But the bears have a compelling case as well…

Analysts expect CSCO’s revenues and profits to be lower from last year. Clearly, investors want to see growth, at least in one area. CSCO will likely go backwards in both.

Moreover, CSCO is a member of the IT hardware group, along with companies like Intel (INTC) and IBM (IBM) – it’s an industry in trouble. Hardware demand isn’t anything like it used to be. Cloud technology is making IT hardware a far more specialized business.

With Cisco’s reliance on hardware, it’s hard to believe there’s much of anything the company can say after close today to make the stock jump.

So is it time to be bullish on CSCO because of its cheap price, or are there too few reasons to be optimistic?

If you think the bulls are right, take a look at buying the CSCO June 21st $23 calls for around $0.50.

If you think the bears are right, take a look at buying the CSCO June 21st $23 puts for around $0.60.

Yours in Profit,

Gordon Lewis

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Category: Call Or Put Options?

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.