Wednesday, December 28, 2011

Cisco - its not the end, its the begining

CCI has been long CSCOCisco for the second half of the year. 
Earlier this week, CCI covered the Jan 12 $10 options we had acquired awhile ago.
Sold these options at $8.45.

This closed out the portfolio's holdings in Cisco. 
  • This lot made $.37/share.
  • The earlier lot lost $.56/share 
So overall this trade lost a little over 1%.  
Never good to lose.  However, the trade was established essentially at the market's peaks this year.  Hence buying many, many other stocks would have lost a lot more.  So this conservative play was at least successful in avoiding a big down draft in the market.  (How's that for

* * *
Going forward the situation at Cisco generally remains the same.  A huge cash stock pile (over $8/share), and a very low valuation. (p/e around 10).  I remain doubtful of the growth picture for the company, but think these valuations can create a nice floor for the stock price.  Hence, when the stock pulled back to the low $18s today, CCI bought the Jan 13 $10 options for  $8.35.   (in essence rolling the options out one year).  Note: there is almost no premium in these options ($10 options plus $8.35 cost, nearly equals stock price of $18.20).  Going forward
  • If CSCO gain we plan to write shorter-term covered calls against these options to generate income
  • If CSCO falls we plan to double down with the acquisition of a second lot of shares

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