Options Action: What we’re seeing in the recent IPO market and Cisco ahead of earnings

Fast Money: Cisco Options Trade and New Tech IPOs Analysis

Key Concepts:

• Cisco technical analysis, breakout, trend line
• Options trading strategy: call buying, put selling, vol crush
• New tech IPOs: Circle, Core
• Implied move, leverage, balance sheet
• Technical analysis of recent IPOs: timeframe, high-low-close chart, 60-minute bars

Cisco Options Trade

Carter Worth's Technical Analysis:

• Cisco (CSCO) exhibits a "textbook instance" of a stock that broke out after a plunge related to tariffs.
• The stock broke above its February high, tested the breakout level ("checks back to the penny"), and has reasserted itself.
• An internal trend line projects a target price of approximately $75-76 per share for buyers.

Mike Coen's Options Strategy:

• The options market implies a move of about 5% for Cisco, which is in line with the average.
• Strategy: Buy October 72.5 calls and finance the purchase by selling September 66 puts and upper 78 strike calls.
• Rationale: To benefit from the "vol crush" expected after earnings.
  • Vol Crush: The anticipated decrease in implied volatility of options following an earnings announcement.

Tim Seymour's Perspective:

• He is long Cisco and favors it due to its more predictable earnings stream.
• He believes Cisco is "cheap" and sees potential for growth, particularly in its software and security businesses.
• He notes positive feedback from clients regarding Cisco's networking dynamics.
• He recommends staying long Cisco in the current environment.

New Tech IPOs: Circle and Core

Mike Coen's Observations:

• Circle and Core are two new tech IPOs with significant options activity.
• Both are trading more than $300 million notionally each day.
• This level of activity would place them in the top 100 of the Russell 1000 in terms of options activity.
• "So a lot of activity there and some big moves expected."

Tim Seymour's Perspective:

• He finds the 20% implied move around Core "pretty intriguing."
• He notes that Core has "a lot of leverage there on the balance sheet."
• He suggests Core is the one to watch and potentially play.

Technical Analysis of Recent IPOs

Carter Worth's Methodology:

• Ideal Timeframe: A standard two-year high-low-close chart is preferred.
• Minimum Data: A view of a stock can be obtained with at least six months of data.
• Alternative Approach: Instead of daily bars, use 60-minute bars to create a 60-minute 150-day (or 150-minute) moving average.

Conclusion

The segment analyzes Cisco using technical charts and proposes an options strategy to capitalize on a potential price increase and benefit from post-earnings volatility crush. It also highlights the significant options activity in recent tech IPOs like Circle and Core, with a focus on Core's high implied move and leveraged balance sheet. Carter Worth provides guidance on how to approach technical analysis for newly listed stocks, emphasizing the importance of sufficient data and alternative charting methods when limited historical data is available.