IB Options Brief: Cisco Systems, Inc. (CSCO)
Traders Construct Cisco Risk Reversals
CSCO - Cisco Systems, Inc.
Large risk reversals are dominating the options-landscape on Cisco Systems this morning, helping to drive volume above 540,000 contracts by midday in New York.
The maker of networking equipment is the most active single-stock as measured by options volume today following the Companyís third-quarter earnings report after the close Wednesday.
Shares are getting crushed, down 10.3% at $16.84 at present, after Cisco forecast lower-than-expected earnings and revenue for the fourth quarter. Risk reversals in the October expiry pay off if shares in CSCO exceed $16.00 through expiration.
One large block of 51,000 Oct. $16 puts sold for a premium of $0.77 apiece against the purchase of the same number of Oct. $19 calls at a premium of $0.54 each, yields a net credit of $0.23 per contract.
The strategist responsible for the trade keeps the premium if the puts expire worthless at expiration. Additional profits are available on the positions should shares in the name rally 12.8% to top $19.00 during the next five months.
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