Cisco Systems Inc. (NASDAQ: CSCO, Stock Forum) is due to report its fiscal third-quarter earnings results after the market close on May 6. Right after the market opened yesterday, we saw some option activity that is likely the work of traders getting ready for this report.
Looking at the May 18 puts in CSCO, we saw that more than 9,900 contracts trading during the first 35 minutes of trading, according to the Sidewinder report at www.onn.tv. The options traded for a volume-weighted average price of roughly 61 cents per contract over those 35 minutes. These options closed at 56 cents the night before. Given that the stock was roughly unchanged at the time these puts were changing hands, it is likely that this was a buyer of the puts because the puts were higher despite the stock being unchanged to slightly higher on the day.
Analysts expect the information technology company’s third-quarter earnings per share to drop to 21 cents compared to 26 cents in the second quarter. In the last reporting period, CSCO earnings per share tanked more than 21% compared to the same period the previous year. The networking firm reported $1.5 billion in profits, or a 27% drop from the previous year.
Brokerage firm Lazard recently raised its price target for CSCO to $21 from $18 for the third quarter. The New York-based boutique investment bank noted that while the economy remains challenging and CSCO's revenue numbers are close to near-record lows, inputs suggest that customers have begun to recover from the recent macro-related shock and awe and have started to carry on more normal business activity around IT projects.
Shares of CSCO are trading more than 38% higher from their closing low of $13.62 back on March 9, and they are at their highest levels since October, trading even higher than at the time of the pre-election rally. This recent run-up could be the reason that investors are purchasing some puts for downside protection in case the stock gives back some of its gains from the last six weeks of positive momentum.