By Jud Pyle, CFA, chief investment strategist for the Options News Network

Cisco Systems ( CSCO) is due to report its fiscal third-quarter earnings results after the market close on May 6. Today, right after the market opened, 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 see that more than 9,900 contracts traded 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 last night. 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 profit, 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.

Jud Pyle is the chief investment strategist for Options News Network (www.ONN.tv) and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.
Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."

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