Bullish CSCO Earnings Play

Cisco Systems (CSCO, $17.90) is expected to announce earnings after the close on Wednesday November 9th.

Breakdown: I bought the CSCO November (weekly) 18-19 Call Spread, and sold the November 17 (weekly) Puts for $0.04 Total (debit).

Profitable – I make money on this trade if CSCO above $18.04 by November 11, 2011.

Break-even – I breakeven on this trade if CSCO closes at $18.04 by November 11, 2011.

Unprofitable – If CSCO closes above $17, but above $18, I can lose the maximum of the amount I paid for the spread, $0.04. However, if CSCO closes under $17 then I will become long the stock and have losses potential of $17 if stock goes to zero. 

The reason I like this trade:

This is a trade that I am making for earnings as we continue to see earnings coming in better than expected. CSCO is expected to have earnings of $.34 per share vs last year’s estimates of $.37. They have had 3 straight quarters where their profits have declined. Their revenues should come in strong at $11.01 billion. 

Technically, CSCO looks like it has bottomed after the breakout of $17 and is currently trading above its 50, 100, 150 and 200 day moving averages which is bullish as well. If stock declines below $17, I will become long the stock down 4.5% at expiration, and will sell calls that expire the following week against the long shares. 

Please email about this trade can be directed to me at Andrew@KeeneOnTheMarket.com.


Andrew R. Keene