CSCO – Cisco Systems, Inc. – Frenzied options trading ensued on Cisco Systems right out of the gate this morning as shares of the world’s largest maker of computer networking equipment plunged as much as 17.3% to hit an intraday low of $20.25 after profit and sales forecasts from the firm failed to meet analysts’ expectations. Cisco said it expects to generate net income of $0.35 a share, at most, on revenue of $10.1 to $10.3 billion in the fiscal second quarter, while analysts projected the company would earn profits of $0.42 a share on revenue of $11.1 billion. The earnings disappointment and the sharp descent in the price of Cisco’s shares inspired some analysts to slash target prices and ratings on the networking equipment giant. Yet, it looks like many investors are utilizing options to position for a recovery in Cisco’s shares. It seems a number of options traders see the new value of the shares as attractive and ripe for harvest. More than 1.03 million option contracts have changed hands on Cisco Systems as of 1:15 pm in New York with shares presently trading lower by 15.9% to stand at $20.59. Investors are favoring calls over puts on the stock today. Options expiring in November, December and January 2011 are the most heavily trafficked right now with the greatest volume generated in out-of-the-money calls in these expiries. Nearer-term options players are buying more of the calls exchanged at out-of-the-money strikes as compared to those selling the contracts. It looks like investors are scooping up cheap calls at deep out-of-the-money strikes, which could result in significant profits in the event that CSCO’s shares reverse course before the end of the year. Similar call buying is taking place in longer-dated options, as well. Put buyers and sellers are also on the scene. Out-of-the-money put sellers that do not expect shares to fall much further are taking advantage of the time value baked into longer-dated contracts, selling for example at least 10,000 puts at the January 2011 $19 strike for an average premium of $0.41 each. Investors short the puts keep the full premium as long as shares exceed $19.00 through January 2011 expiration. Options implied volatility is lower by 3.0% this afternoon to arrive at 30.25% as of 1:15 pm.