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Selling Puts on Cisco Systems is a Great Way to Generate Income

John Jagerson and Wade Hansen

To receive further updates on this Cisco Systems (NASDAQ:CSCO) trade as well as an alert when it’s time to take profits, sign up for a risk-free trial of Strategic Trader today.

We are recommending a bullish trade on Cisco Systems (NASDAQ:CSCO) in the form of a put write.

This will be the third time we’ve sold puts on CSCO. Last week, we bought to close our CSCO May 3rd $54.50 Put Write because the stock had rallied, making the options we sold less valuable. Rather than risk having the stock move against us, we thought it was better to lock in our profits. That way, we could wait for CSCO to pull back before opening another position.

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Now that CSCO has dropped back down to support at around $56, we have a good opportunity to open a new trade.

CSCO’s Highest Price in Over a Decade

We like CSCO from a technical and fundamental perspective. CSCO isn’t just trading above its 2018 highs. It’s also breaking out of new bullish continuation patterns to reach its highest price in more than a decade.

The company has been able to gain ground because while many sectors of the global economy have experienced slower growth this year, networking infrastructure isn’t one of them.

Companies are spending billions as they continue to build out their cloud and internal networking infrastructure. CSCO also seems to be taking advantage of the legal and political woes of Huawei, one of the company’s biggest competitors, to claw back market share.

From a more macro perspective, CSCO is not only likely to be in favor with investors as a large-cap growth stock, but also as a reliable dividend payer. Interest rates are expected to remain very low this year, which increases the value of each dividend payment.

New Support at $56

As we mentioned above, the stock has come down a little over the last few days, and it is currently up from short-term support near $56 per share. If you look at the daily chart below, you can see that there was some resistance around that level before CSCO’s recent move higher.

Daily Chart of Cisco Systems (CSCO) — Chart Source: TradingView

The fact that CSCO has found new support just above its old resistance level gives us a great chance to open a new put write.

We think CSCO will continue to head higher in the near term. The pressure on Chinese telecom equipment-makers, like Huawei, will give CSCO an edge for the next 18-24 months. And as one of the few tech stocks with a non-negligible dividend, CSCO should see stronger than average momentum over the next few weeks.

To find out which puts we’re selling — and to get access to our full portfolio of income-generating trades — consider signing up for risk-free trial subscription to Strategic Trader today. 

InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of Strategic Trader.

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