Cisco Reports Strong Earnings but Shares Fall 5%

I am left with quite a dilemma because even though Cisco reported good earnings, the markets were not impressed. I myself had been hoping for at least $.35 to $.38 but non-GAAP $.34 was announced, $.01 above views. It was disheartening to see this stock get taken to the shed and shot but this was clearly the "sell the news" event. The expectations were huge on this stock and because this is a bellweather stock one good thing came out of this event today.

Our economy is doing just okay and that many of the Cisco's vendors are saying that "soft landing" is in full force.

So what is my plan today? I think that this stock will be under pressure tomorrow morning before the market opens. I am not sure if this stock deserves a 5% hair cut though. A fair price for this stock would be around $31 based on this earnings. Once the investors have finished freaking out, it may be a good time to hold on to the options for additional few weeks to see how this stock plays out.

There have been rumblings of possible partnership between Apple and Cisco but no more detail can be found. I am not sure of the authenticity of this claim but if it is that can jump start Cisco in the right direction.

More realistically, the stock should meander from $25.90 to $27.90 tomorrow. For options traders like me, I am going to take advantage of the higher implied volatility at the open and get out. Based on I Volatility.com, stock price of $27.25 will yield call contract price of $1.02 and stock price of $26.77 would yield option price of $.80. My basis point for June 27.50 call was $1.32 and if I can maintain 70% of my position tomorrow morning, I would be grateful.

I will cut my losses and move on.

I am looking into J&J September calls which are fairly undervalued and the IV and HV have not diverged yet. I believe that based on the cup base formation, this stock may be ready to prod upside. Additionally, I am planning on adding onto the June $70 call of Crox. I already have 17 contracts placed on this trade. I would like to take the remainder of my capital and concentrate into Crox over time, taking advantage of volatility in price. I am hopeful that I can gain 300 contracts here. There is more upside left in Crox.

So for those reeling from Cisco, take heart, because there is always another day.