Option traders may have found a new big tech favorite ahead of this week’s earnings: Legacy Networks Giant Ciscothe stock is now surging into Wednesday’s report after a multi-year pivot to software and cloud-based artificial intelligence technology.
The stock is up 15% over the past month, and options bulls are on the rise, with more than 75,000 calls trading versus more than 16,000 puts as of noon central time Friday. More than twice as many calls were trading above the ask price than the buy price, meaning traders were buying upside exposure.
Stocks were rising on Monday amid tough conditions.
Most of the trades were at-the-money or near-the-money call contracts, which rose in value as the stock rose through Friday’s session. The 100-strike call expiring on May 15th was the most popular contract based on volume, while the 95-strike call expiring on the same day accumulated the most traded premium.
Cisco since the beginning of the year
Perhaps most notable is that implied volatility (the price of Cisco’s traded options) has risen rapidly amid a bumper crop of trades. Implied volatility hit 47 on Friday, the highest level in more than a year and on par with the semiconductor index, a sector whose stock prices are parabolic.
The rise in call premiums with stock prices has become a key distinguishing feature of momentum stocks, which attract the attention of retail traders who are willing to bet that stock prices will rise quickly.
Recent example: Legacy chip makers intelless than a year after being freed from irrelevant chatter, is up 88% since bullish options flow was identified pre-earnings.
