New Trade Alert for (CSCO)
Internet Icon Cisco Systems Buy June $30 Call @$5.00 or less
Trailing Tech Titan
Big Boys in the Nasdaq have the index up an astounding 30% in 2017 with almost two months left.
Internet icon Cisco Systems has under performed with an ample 10% push in the last year.
P.S. by the way CSCO made a $2.5 BILLION profit last quarter alone.
The reward to risk makes them an attractive value play.
The breakout of the multi month mostly $31 to $34 sets up for a run to $37 per share another 10% above.
For perspective, this stock fell from dot com $75 to $10 lows putting the midpoint recovery target at $40+.
A stock substitution strategy using options ties up less capital and has absolutely limited risk to the premium paid. An option instead of buying the shares also has greater staying power for long term trend development.
The June option has seven plus months for Bullish development.
An In-The-Money option gives you the right to be long the shares from a lower strike price and costs much less than the stock itself.
The Options Way: Unlimited Upside Potential with Limited Risk.
A Cisco long call option can provide the staying power in a potential bullish trend extension. More importantly, the maximum risk is the premium paid.
One major advantage of using long options instead of buying or selling shares is putting up much less money to control 100 shares — that’s the power of leverage.
Choosing an option can sometimes be a daunting task with all of the choices and expiration months. Simply put, traders want to buy a high probability option that has enough time to be right.
The option strike price is the level at which you have the right to buy without any obligation to do so. In reality, you rarely convert the option into shares. Simply sell the option you bought to exit the trade for gain or loss.
There are two rules options traders need to follow to be successful.
Rule One: Choose an option with 70%-plus probability. The Delta is a measurement of how well the option reacts to movement in the underlying security. It is also important to buy options that payoff from only a modest price move.
There is no need to ONLY make money on the all but infrequent long shot price explosions.
Good Options can profit from only modest directional moves.
Any trade has a fifty/fifty chance of success. Buying options ITM options increase that probability. That Delta also approximates the odds that the option will be In The Money at expiration.
Buying better options is more expensive, but they are worth it — the chances of success are mathematically superior to buying cheap, long shot Out Of The Money lottery tickets that rarely ever pay off.
With CSCO at $33.90, for example, an In The Money $30.00 strike option currently has $3.90 in real or intrinsic value. The remainder of any premium is the time value of the option.
Rule Two: Buy more time until expiration than you may need — at least three to six months for the trade to develop. Time is an investor’s greatest asset when you have completely limited the exposure risks.
Traders often buy too little time for the trade to develop. Nothing is more frustrating than being right but only after the option has expired premature to the market move.
Trade Setup: I recommend the CSCO June $30 Call at $5.00 or less. A close in the stock below $30 on a weekly basis could trigger an exit.
An option play also has staying power with the ability to ride through Ups and Downs that would force most stock traders out of the position.
The option also behaves much like the underlying stock with a much less money tied up in the investment. The Delta on the $30 strike call is 76%.
The June option has seven months for bullish development. This option is like being long the stock from $30 with completely limited risk.
CSCO has not been to the $30 strike since January.
The maximum loss is limited to the $500 or less paid per option contract, with a stop at half of the premium paid to lower dollar exposure . The upside, on the other hand, is unlimited.
The CSCO option trade break even is $35.00 or less at expiration ($30 strike plus $5.00 or less option premium).
If shares move to the $37 target this option would be worth $7.00 for near a 50% return on investment.