YesterdayCSCOannouncedawelltelegraphedandawellneededplantorestructurethecompanyinefforttobetterstreamlineoperationsorwhatever?

Itsallabunchof?

mumbojumboinmyopinion,andanyorganizationalchangeswilltakequarterstoreallyaffectthebottomline,unlesstheyannouncesomemasslayoffs?

andsoon。

-Thenewsofrestructuringdoesntchangethefactthatthecompanyscorerouterandswitchingbusinessthatrepresentsabout1/2theirsalesandalmostthreequartersoftheiroperatingincomeisfacingmassivepricingpressuresandmarketsharedeclines?

Soanyeffort?

bythecompanytomaintainmarketsharecomesatthecostofgrossmarginsandthusearnings。

theyareinabattletoavoidthelikelyresultoffindingtheircorebusinessincommoditizedhellwhiledesperatelysearchingforgrowth。

-Theanalystcommunity?

generallytookthenewsasneutraltopositivebutmostagreethatitisnecessaryforanewoperationalplanandnowviewasa?

showmestory?

Streetisfairlymixedonthenamewith23buys,22holdsand2sells。

EVENT:FYQ311earningsreportMay11th(aftertheclose)

-theoptionsmarketiscurrentlyimplyingabouta?

6%move?

vsthe8qtravgmoveof~6。

5%andtheaverageoverthelast?

4qtrsof~11%。

MYVIEW

Afterreadingthroughthecompanyspressreleaseregardingtherestructuring,andWallStreetsreadthroughIseelittletogetexcitedaboutinthenearterm。

-WhileexpectationsareverylowheadingintotheAprilqtr,manyseetheJulyqtrconsensusestimatesasoverlyoptimisticandlikelytocausethecompanytoagainlowertheoutqtrguidance。

-Bigquestioninmymindiswhetherornotmanagementwilljustkitchensinkthebalanceoftheyearandpossiblytakedownlongertermgrowthtargetsinanefforttoestablishaseriesofbeatstoco-insidewiththeirexpectedrestructuringmilestonesinthequarterstocome?

Iftheydothisyoucouldseeonemoreflushlowertothe~$14-15。

00areawhichmarksthelowsfromearly2009andlevelsnotseebeforethatsince2002。

-IthinkitisahardshorttopressatthistimeespeciallywhenyouconsidermanagementsnewfoundfocusonrightingtheshipTheriskrewardattheselevelsisprobablydown$2。

5toup$5-7ifbusinessenvironmentturnsaroundalongsideoperatingimprovements。

AFEW?

WAYSTOPLAYFROMTHELONGSIDE:

1styoucouldsimplybuythestockasIthinkthenear-termdownsideisabout$14-15(downabout15-18%fromcurrentlevels)?

Iwanttolooktostructuresthatwillreplicatelongexposurebyeitherdefiningriskorcreatesomebandsinwhichyougetlong?

ReadpostfromApril6,CSCO,Lostandthenfound?

WaysToPlayAPotentialRebound

1stTRADE:CSCO(ref17。

48)BUYCallSpreadRiskReversalinJan12

-SelltheJan1215Putat~。

70andBuyJan12?

19/22。

50callspreadfor。

70

-SellJan1215putat~。

70

-BuyJan12?

19callfor~1。

00

-SellJan12?

22。

50Callat。

30

GETSTRUCTUREONFORNOCOST

Break-EvenonJan12Expiration:

Upside:stockbtwn?

19(up8。

5%)and22。

50(~28%)canmakeupto3。

00(orabout17%oftheunderlying)。

Downside:stockbtwn?

19and?

15NOLOSES,otherthanmarktomarketasthePutyouareshortwillgainvalueasitgetsclosertothestrike。

WORSTCASEstock$15orbelow(down~14%)andyouarePutthestock。

TRADERATIONALE:IwanttocreateastructurewhereIstartparticipatingintheupsidefairlysoonbutalsowidenthebandinwhichigetlongonthedownside?

Thistradewilltakesomemarginasyouwillbenakedshortthedownsideput?

AlsothistradewillhavegainsorlosesasthestockmovesclosertooandfurtherawayfromthePutthatyouareshortandtheCallthatyouarelong。

2ndTRADE:BUYMAY18/19CallSpreadfor。

22。

ThisoneIhavelessconvictionandisclearlymoreSpeculative,butifyouareinclinedtothinkthatanynewswillbegoodnewsregardingyesterdaysrestructuringandJulyguidancestaysput,thenlooktoshortdatedtightcallspreads,DEFINEYOURRISKWITHLITTLEPREMIUMOUTLAY。

TRADE:CSCO(ref17。

48)BUYMAY18/19CallSpreadfor~。

22

-BuyMay18callfor。

34

-SellMay19callat。

12

Break-EvenonMayExpiration

Upside;stockbtwn18。

22(up~4%)and19(up~8。

5%)youcanmakeupto。

78,above19youmakeall。

78。

Downside:stockbtwn18。

22and18youlose。

22premiumyoupaid,andbelow18youloseall。

22。

Aswenotedlast?

Fridayinapost?

titled?

CSCOCatchUpPlay:PotentiallyAdd6。

5%YieldByJuneExpirationForNextToNothingtherearewaystoaddyieldtoanexistinglongwithoutaddingrisk,Seebelow:

3rdTRADEEXAMPLEAGAINSTALONGPOSITION:

-LongCSCOat17。

48

-Buy1June19callfor。

24and

-Sell2oftheJune20callsforatotalof。

22(。

11each)

(InthisexampletheCSCOJUN12CallSpreadcostsyou。

02)

Break-EvensonJuneExpiration:

Downside:Ifthestockisbelow17。

48yousufferlosesasyouwouldifyouwerejustlongthestock,plusthelossofthe。

02inpremiumthatyoupaidforthecallspread。

Upside:-Between17。

50and20youmakethegainsofyourlongstock

Between19and20youcanmakeupto。

98plusthegainsinyourstock。

-Bestcasescenariothestockclosesat20(up~14%)andyouwouldmake2。

52inyourstockand。

98inthecallspread(ornearlyanextra5。

5%yieldfromtheoptionsoverlay)。

-Stockabove20onJuneexpirationyourlongstockiscalledawayup14%andyourcallspreadexpiresworth。

98,soyouhaveeffectivelymade~20%。

TRADERATIONALE:Ifyouarelongandnotgoingtosell,butthinkthestockcouldhaveareliefrallyifthecompanywasabletobeatearningsestimatesandmaintainorevenraisenextquarterguidance,itmaymakesensetoconsiderastrategylikethistohelpaddsomeyieldtoyourlong,withonlyaddingasmallpremiumoutlay,whichhappenstobetheonlyaddedrisk。

Thereisalwaystheriskthatthestockripsandyouhaveessentiallygivenitawayat20。

Butyouwouldbesellingyourlongat20。

98(up~21%)onJuneexpiration(considerthatyouarelongat17。

48andyouwroteoneJune20callagainstyourlongpositionandthenyouownaJune19/20callspreadthatyoucanmakemaximumof。

98。

Soeffectivelyyouhavemade2。

52onyouroverwritethatiscalledawayandthen。

98onyourcallspread。

)

Inmyopinion,thelikelihoodofarallymuchabove20。