Unusual Options Activity: Oracle (ORCL)

Database software company Oracle (ORCL) sold off heavily on Tuesday, following weak guidance in its most recent earnings report. One trader is betting on a partial rebound in the coming days.

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  • That’s based on the September 29 $115 calls. With 15 days until expiration, 5,959 contracts traded compared to a prior open interest of 110, for a 54-fold rise in volume on the trade. The buyer of the calls paid $0.88 to make the bullish bet.

    Shares recently traded just under $110, so they would need to rise about $5, or just under 5 percent,  in the next two weeks for the option to move in-the-money.

    Prior to its earnings report, shares traded just over $125, so a rebound to the $115 range looks possible in the coming weeks.

    Oracle dropped as it reported a slowdown in revenues from its cloud sales division. Shares now trade at about 22 times earnings, down from nearly 40 times earnings at the end of last November.

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  • Action to take: Over the long-term, the company’s push into recurring revenue businesses and into the AI space should lead to improved profitability.

    That makes the drop an opportunity to buy shares at a more reasonable price. Today’s investors can also get a 1.4 percent dividend.

    For traders, the September calls don’t have much time to play out.

    But shares should partially rebound from their selloff in the coming weeks, so the option can likely deliver mid-to-high double-digit gains.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

     

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