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Are Option Traders Preparing for Another Blowout in Cisco Earnings?

You would think that writing about CSCO would be super boring, like your grandpa bribing you with a Werther's to listen about how he used to be a checkers grandmaster.

But like so many other big cap names we've seen over the past six months, it can really trade like a $10 stock.

Take a look at the earnings gaps, leaving a path of destruction for buy and hold investors:

And here's where it gets even better: the options market got it completely wrong over the past 2 earnings events. Not just a little wrong, but the premiums were mispriced by several orders of magnitude. I talked about this last time around, where the options market wasn't the least bit concerned with a potential repeat of the last gap down.

So what about now?

Well, it's the same song and dance. The current price of the front week straddle is offered for 1.08. We can use the short term options to price in the current earnings risk in the market. So the options market is expecting a 4.9% move between now and Friday. To put that into perspective, CSCO saw a -10% move on May 12th, and a -16.2% move back in November.

So is it back to business as usual in CSCO? It's really hard to tell. This is not a stock you'd expect to have gunslinging price action, but that's what we've seen recently. And once again, the options market is not concerned at all, which makes selling volatility here a tough trade.

by Steven Place

Steven Place is the founder and head trader at