Shares of internet hardware provider Cisco Systems (CSCO) have been in a downtrend for the past few months. One trader sees the prospect of further declines in the months ahead.
That’s based on the June 2023 $45 puts. With 393 days until expiration, 4,001 contracts traded compared to an open interest of 183, for a 22-fold rise in volume. The buyer of the puts paid $3.73 to get into the trade.
Shares last went for about $50, so the stock would need to decline about another 10 percent in order for the option to move in-the-money. The stock is still well off its 52-week high near $65 per share.
While the stock is down in the past few months, the company has been performing better, with revenue up 6 percent over the past year, and earnings up 17 percent over the same timeframe.
Action to take: Shares traded at just 13 times forward earnings, which make for an inexpensive tech play right now. Plus, shares yield 3.1 percent at current prices, with the added bonus of being a dividend growth play over time.
For traders, the puts could play to a further short-term drop in the market. And with more than a year to play out, they’re fairly inexpensive. Traders could consider this trade, but should look to take quick profits, even in the low-to-mid double-digit range, as shares likely have more longer-term upside and would likely only fall further from here with a market selloff.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.