Cisco Systems (CSCO) 11/3/09 PriceWatch Alert Targets 8.87% Downside Protection

Posted: Tuesday, November 03, 2009 8:34 AM EDT
By: Market Intelligence Center Staff

Cisco Systems (NasdaqNM: CSCO) closed yesterday at $23.00. So far the stock has hit a 52-week low of $13.61 and 52-week high of $24.83. Cisco Systems stock has been showing support around 22.36 and resistance in the 23.52 range. Technical indicators for the stock are Bearish and S&P gives CSCO a positive 4 STAR (out of 5) buy rating. CSCO appears on the Investors Observer Analysts Favorites list. For a hedged play on this stock, look at an Apr '10 23 covered call (CYQ DM) for a net debit in the $20.96 area. That is also the break even stock price for this trade. This covered call has a 165 day duration, provides 8.87% downside protection and a 9.73% assigned return rate for a 21.53% annualized return rate (comparison purposes only). A lower cost hedged play for this stock would use a longer term call option in place of the covered call stock purchase. To use this strategy look at going long the CSCO Jan '11 12.50 Call (VYC AV) and selling the Apr '10 23 call (CYQ DM) for an $8.96 debit. The trade has a 165 day life and would provide 6.70% downside protection and a 17.19% assigned return rate for a 38.00% annualized return rate (for comparison purposes only). Cisco Systems does not pay dividends at this time. [ATU-Seven Summits Research]