Traders flee bullish bet ahead of Cisco's earnings

Options Action: Cisco to move lower?
Options Action: Cisco to move lower?   

Shares of Cisco have rallied 8 percent in the past three months, but despite the move, some sophisticated traders are betting the rally will be short-lived.

On Monday, when options volume was 1.5 times its daily average, a trader closed out an existing bullish position in Cisco. The move comes as the tech company is about to undergo its first CEO change in more than 20 years. John Chambers announced on May 4 that he's stepping down from the top position and will be succeeded by longtime Cisco executive Chuck Robbins at the end of July.

A changing of the guard has in the recent past proven to be quite beneficial for shares in other companies. Microsoft stock is up 26 percent since Satya Nadella became CEO last year and Intel has gained 32 percent in the two years Brian Krzanich has been in charge.

Cisco CEO John Chambers.
Getty Images
Cisco CEO John Chambers.

"Some of these old tech names can get a boost from a new plan when investors can really see what the next leg of the story is," said options expert Dan Nathan, co-founder of RiskReversal.com.

However, by exiting this bullish position, this particular trader no longer expects the upcoming earnings release to be a significant catalyst for the stock.

Still, the options market has been implying a 4.5 percent move in Cisco in either direction—a little shy of its four-quarter average move of 5 percent, notes Nathan. He adds that $30 has been a technically significant level for the stock, with the shares rarely staying above that price since the end of the dot-com bubble in 2001.

"You want to set up to own this stock," said Nathan about Cisco.

Disclaimer

Contact Options Action

  • Showtimes

    Fridays, 5:30p ET
    Saturday, 6a ET
    Sunday, 6a ET
  • Melissa Lee

    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

Sponsored Related Links

More on thinkorswim by TD Ameritrade

  • Make sure you’re always keeping up with the market with up-to-the-minute news and breaking stories. Move on possible breakout stocks and options with potential opportunity. Plus, get in-depth analysis on futures and forex in one seamless, integrated experience. Join TD Ameritrade and trade commission-free for 60 days + get up to $600 cash.