Filed under: Major movement, Forecasts, Good news, Industry, Cisco Systems (CSCO), Texas Instruments (TXN), Options, Technical Analysis

Cisco Systems, Inc. (NASDAQ: CSCO) shares are rising this morning, helped by Texas Instruments’ (NYSE: TXN) announcement that it expects fourth-quarter earnings of 50 cents to 54 cents per share, from a previous per-share range of 48 cents to 54 cents for the fourth quarter. TXN said that overall inventories of semiconductors were small, a good sign for technology stocks, including CSCO. If you think that the company 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 SYMC.

After hitting a one-year low of $24.82 in March, the stock hit a one-year high of $34.24 in November. CSCO opened this morning at $27.82. So far today the stock has hit a low of $27.80 and a high of $28.99. As of 11:05, CSCO is trading at 28.80, up 1.14 (4.1%). The chart for CSCO looks bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider an April bull-put credit spread below the $10 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 a 9.2% return in just 4 months as long as CSCO is above $10 at April expiration. Cicso would have to fall by more than 22% before we would start to lose money. Learn more about this type of trade here.

CSCO hasn’t been below $24.50 at all in the past year and has shown support around $27.50 recently. This trade could be risky if investors continue to have a negative reaction to Cisco’s last earnings release, but even if that happens, this position could be protected by strong support the stock has formed just above $25 in the early part of this year.

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 neither owns nor controls positions in CSCO or TXN.

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This entry was posted on Tuesday, December 11th, 2007 at 11:38 pm and is filed under Stocks Money News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.