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

| February 12, 2014 | 0 Comments

IBM optionsCisco Systems (CSCO), the world’s largest networking company, reports earnings after close today.  What could be in store for the company with its recent history of disappointing earnings?

CSCO shares are trading at $22.76, up 2% year-to-date.  The stock’s up 16% from the 52-week low of $19.55 and is 13% below the 52-week high of $26.09.

Is this an opportunity to buy call options on CSCO because investors have already built in the bad news?  Or should you buy put options on CSCO because of the poor outlook given by the company?

The bulls make a convincing argument…

The demand for networking equipment has been down as the popularity of cloud computing has taken off.  What’s more, weak demand in emerging markets is hurting sales.

However, CSCO has made it very clear that these factors would negatively impact the company’s financials.  In other words, investors are well aware of the negatives and it should be priced in.

With expectations running so low, any bit of positive news from CSCO tonight and the stock could take off.  When sentiment is universally negative towards a company, that’s when the surprises tend to come.

But the bears have a compelling case as well… 

It’s hard to argue with the facts.  Last quarter, CSCO warned that a 10% drop in revenues was likely for this period.  Weak demand is difficult for any company to overcome.

What’s more, other big tech companies, such as IBM (IBM), already posted very disappointing earnings.  The odds don’t look good for CSCO.

Not to mention, the company could continue to give a gloomy outlook for the industry.  At some point, investors may have had enough of the company’s lack of growth and move on to better opportunities.

So are low expectations a reason to buy, or is it going to be more of the same for CSCO?

If you think the bulls are right, take a look at buying the CSCO March $23 calls for around $0.75.

If you think the bears are right, take a look at buying the CSCO March $23 puts for around $1.00.

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.