Cisco Stock For Short-Term Put Selling Profit

As Cisco Systems prepares to release earnings around May 15, Cisco Stock is becoming more volatile and the recent downward pressure on Cisco Stock is creating a short-term Put Selling opportunity. Cisco Stock’s trading symbol is CSCO and it trades on the NASDAQ index.

Cisco Stock’s pullback today of almost 2.5% (May 7 2013) has opened up the $19 put strike for Put Selling to earn slightly more than half a percent return for less than two weeks work. I like Cisco Stock at $19 for its potential for additional trading strategies if the stock should fall and I end up being assigned shares. Net income and revenue has risen steadily from Cisco Systems over the past several years. For this quarter, analysts are looking for $12.2 billion in revenue which would be a major jump from 11.6 billion in the same quarter last year and 12.1 billion from the previous quarter. Per share, analysts are looking for .49 cents versus .48 cents for the same quarter last year.

Book value of Cisco Stock is $9.68 per share and Cisco Stock trades at 12 time price to earnings. Revenue was 47.3 billion for the past year and cash flow is a very respectable $2.25 per share. The charts on Cisco Systems though show a few problems that investors need to be aware of especially those investors engaged in Put Selling but do not want to ever be assigned shares of Cisco Stock.

Cisco Stock Put Selling 1 Year Chart

Looking at the one year chart I have marked a couple of items that I have noted for my own Put Selling needs:

When the stock dipped mid-fall 2012 in November at POINT A, you can see the the accumulation / distribution tool shows that sellers dominated as you can see at POINT B. This was opposite of what happened in the May to August period in 2012 when the dip in the stock resulted in buyers remaining and picking up shares. This advises investors that in the fall period of 2012 when the stock dipped a lot of investors were selling and many may have been from the period of May to August 2012 and they were locking in their profits.

The recent move lower in April and into May 2013 has not seen a decline yet in accumulation which is bullish for the stock not falling far.

Meanwhile the $19 put strike has only fair support although certainly better support than the $20 strike.

Cisco Stock 1 year chart

Cisco Stock 1 Year Chart

Cisco Stock Put Selling For May 18 Expiry

I like the May 18 $19 put strike and sold this strike today for .12 cents. I will look to sell more if the stock moves lower over the remainder of this week as Cisco Stock moves closer to earnings announcement on the 15th of May. However I am not sure this is a trade for investors who would not own the stock. For myself, if I was assigned I would simply use covered calls and then add in my Put Selling at lower strikes to move myself lower into the stock and augment the income being earned from covered calls.

The general consensus among analysts is that Cisco Stock could reach $24.50 over the next 12 months. While I can certainly see this possibility I also think it could easily see $19.00 again and possibly before it reaches $24.50. But at $19.00 I think the stock is fairly valued and I can use a variety of option strategies to profit from being assigned shares at $19 should that happen.

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