Cisco CEO Upbeat About Economic Recovery

Posted Jan 29th 2010 2:20PM by Brent Archer
Filed under: Earnings Reports, Good news, Management, Cisco Systems (CSCO), Options, Technical Analysis, Juniper Networks (JNPR)

Cisco Systems (CSCO - option chain) shares are rising today after company CEO John Chambers said in an interview that tech companies often are among the first to see gains in a recovering economy as businesses upgrade their technology. This could be a good sign for the company, which is scheduled to report Q2 earnings on Wednesday evening. Analysts are looking for the company to post a profit of 35 cents per share on revenue of $9.4 billion, compared to a profit of 32 cents per share on revenue of $9.09 billion in the year-ago period. A good quarter announced last night by competitor Juniper Networks (JNPR) also bodes well for Cisco next week. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on CSCO.

CSCO opened this morning at $22.95. So far today the stock has hit a low of $22.55 and a high of $25.10. As of 12:00, CSCO is trading at $22.63 up 11 cents (0.5%). The chart for CSCO looks bullish and S&P gives CSCO a positive 4 STARS (out of 5) buy ranking.

For a bullish hedged play on this stock, I would consider an April bull-put credit spread below the $20 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in three months as long as CSCO is above $20 at April expiration. Cisco would have to fall by more than 12% before we would start to lose money. Learn more about this type of trade here.

CSCO has not been below $20 since July and has shown support around $22 recently.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent controls bullish hedged positions in CSCO.

Tags: Cisco Systems, CiscoSystems, CSCO, earnings, inthenews, Investors Observer, InvestorsObserver, JNPR, Juniper Networks, JuniperNetworks, options