Cisco Watchers Key on Earnings Day Options Play

Author:
Publish date:

While some traders and investors are taking some last-minute election-related bets, most options market pros' attention was focused on

Cisco

(CSCO) - Get Report

, which reports earnings after the close.

Cisco's earnings are seen by many as important for the market considering how rough this earnings season has been for the overall market and especially key technology stocks. Shares of Cisco slipped 88 cents to $55.88 by midday Monday.

"Cisco, that's what people are watching," said Paul Foster of

1010WallStreet.com

in Chicago.

While many were chewing their fingernails waiting for the results from the networking giant, options market action wasn't giving a clear signal as to where the alleged smart money thinks Cisco's headed after Monday's report.

Joe Sunderman, an analyst at options firm

Schaeffer's Investment Research

, said he was "not seeing any substantial read" on where people think Cisco's going to travel postearnings.

Going into today, in looking at the options for the front three months, the put/call ratio on Cisco was 0.62, a number that has been rising since the October expiration, he said. That number shows, essentially 62 put options being traded for every 100 call options.

However, the 0.62 level is in the middle of the range that Cisco's put/call ratio has been in the past year's worth of data, and was "not showing much" as far as directional indicator on where people think Cisco might be headed.

If the ratio or recent options activity was showing a preference for more calls than puts, or vice versa, traders would see that as a cue for earnings sentiment.

As expected, prices for Cisco options were inflated ahead of the earnings report. Sunderman said put options were more expensive than the calls. Based just by the way the options are priced, he said that market participants could be looking for a bearish move on the announcement.

Volume on Cisco was about even for puts and calls, Sunderman said.

On the

Chicago Board Options Exchange

, the out-of-the-money November 60 calls were seeing a lot of action, with the calls trading down 1/4 ($25) to 1 5/8 ($162.50) on volume of nearly 6,000 contracts.

On the

American Stock Exchange

, there was notable volume in the out-of-the-money November 50 puts, with 6,100 contracts trading,up 1/4 ($25) to 1 3/4 ($175).

The

First Call/Thomson Financial

31-analyst consensus estimate is calling for Cisco to earn 17 cents a share in its fiscal first quarter, up from the year-ago 12 cents. The company is projected to post revenue of $6.4 billion, according to First Call.

Options market making firm

O'Connor & Company

and six designated primary market maker firms that operate on the

CBOE

, have entered into a joint venture to create a marketing services organization called

O'Connor Specialists

.

Under the joint venture, brokerage firms and customers will now be able to communicate with these six DPMs through a single O'Connor contact. The six founding DPM members of the venture are

Rathunas

,

StoneHedge Securities

,

Option Funding Group

,

TradeNet

,

Prime Markets

and

Callahan

.

In sum, the firms trade an average of more than 70,000 options contracts per day and make markets in 138 equity option classes on the CBOE.

Smaller options trading firms are seeking to ally themselves with larger ones to provide enough service to bring enough orders from brokers and institutional trading firms.