Cisco option players place last-minute bullish bets

CHICAGO (Reuters) - Some option players are placing last-minute bullish bets on Cisco Systems Inc (CSCO.O) hoping for encouraging quarterly results from the technology company.

The shares of Cisco, which makes router and switches that direct Web traffic, edged up 9 cents to $26.38 in afternoon trading before the results were released.

In the U.S. options market, volume was running three times the normal level, with roughly 169,000 calls, giving the right to buy Cisco shares and 143,000 puts in late afternoon trading, according to option analytics firm Trade Alert.

A lot of that action reflects positioning in the May contracts ahead of the news.

Among the most active contracts are the May $26 calls, reflecting a modest amount of buying interest and the May $25 puts, which is seeing slightly more selling compared with buying, said independent options trader Frederic Ruffy.

Early market action showed many traders crowding into the May $26 calls, enabling investors to buy Cisco shares at $26 a piece for 85 cents a contract.

"It must be said that we have seen some traders willing to stake some eleventh-hour bullish bets," said Rebecca Engmann Darst, equity options analyst at Interactive Brokers Group.

Jon Najarian, co-founder of Web information site optionmonster.com. also noticed buying interest of 30,000 contracts in the May $27 calls.

This indicates that some institutions feel Cisco could have an earnings surprise up their sleeve, positive guidance or both, Najarian said.

Traders were inclined to sell May puts at the $24, $25 and $26 strike prices, suggesting the cost of protection will go down on Wednesday, Darst added.

In contrast, many options players on Friday were on the defensive after Sun Microsystems had a surprise earnings miss.

At that time, they rushed to buy the May $27 puts and paid 95 cents for the right to sell Cisco shares at $27 before May expiration, Darst said.

Overall, the early action in the stock price and in the options market did not appear to suggest that investors were leaning heavily on one side of the trade or the other.

"This is probably due to the fact that the company has a history of posting earnings at or near consensus estimates," Ruffy said.

Over the past four quarters, Cisco has matched analyst estimates once -- 38 cents in the previous quarter compared with consensus estimates of 38 cents -- beat by four cents two quarters ago, and beat by a penny during the other two, Ruffy said.

Over the past four quarters, Cisco has topped analyst estimates by 1.5 cents, Ruffy added.

(Reporting by Doris Frankel; Editing by Andre Grenon)