DGI Adventure 07-03-16 Sold Cash Secured Put +Investment Thesis – Cisco Systems, Inc (CSCO) – $27.00 strike – July 08 Expiration

This trade was actually executed on Friday 06/24/16. I didn’t get a chance to write about it until today.

Please visit the core philosophies article on my investment thesis process for a deeper explanation of the components of this article.

Dividend Cycle

CSCO goes ex-dividend on 07/05/16. The distribution will be $0.26/share, and I’m going to miss out on it. I actually think I screwed this one up. My premium is less than the dividend. This was the first or second trade I made on Brexit morning, and I guess I was just a little too hasty.

CSCO is a dividend challenger having raised their payout for 6 consecutive years. They just raised it in April, so they’re not due for another raise until next year probably. This trade will expire just after the ex-dividend date.

Investment

image

The QC (Quantitative Case)

image

SPL (Strike Price Logic)

I think it was the great yield, with a very short duration (2 weeks) that drew me into this trade. This executed pretty early on during brexit day. In other words, it had a lot more downside protection when it executed compared to where shares closed that day. Things have recovered quite a bit (at time of writing the trade enjoys over 6% of downside with a week left.

QWaF (Qualitative Warm and Fuzzy)

Cisco is probably one of the most dominant and moatiest companies in the tech space.Their network hardware sets the gold standard in the industry, and they’re so integrated into everyone’s IT department, the switching costs make for very “sticky” revenue. The company is extremely well positioned to capitalize on the growing revolution of the internet of things (IoT).

CPR (Cold and Prickly Risks)

Things are moving more and more to the cloud, and Cisco’s hardwire LAN switching technology may become less and less relevant over time. Plus they’re facing competition from some innovative new chinese manufacturers. Considering the cash horde and the company’s history of successfully evolving with their market, I’ll take the risk.

Leave a Reply