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Pre-Earnings Bearish Betting Heats Up on Oracle Corporation (ORCL)

Oracle Corporation is tentatively scheduled to report earnings the week of June 16

by 6/4/2014 9:45 AM
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Option players have been accelerating their rate of bearish betting on Oracle Corporation (NYSE:ORCL) in recent weeks, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Over the past two weeks, ORCL's 10-day put/call volume ratio on these exchanges has grown to 0.97 from 0.63, and now ranks in the 60th percentile of its annual range. Simply stated, puts have been bought to open (relative to calls) at a slightly faster-than-usual clip.

It was a similar backdrop on Tuesday, where puts crossed the tape at two times the average daily rate. Traders showed a penchant for short-term options, as the equity's 30-day at-the-money implied volatility (IV) rose 1.6% to 21.8% -- its highest close since mid-April. The three most active options of the session were out-of-the-money front-month puts, as a number of speculators gambled on a near-term drop for the software concern.

Specifically, the June 39, 40, and 41 puts saw the most action in ORCL's options pits on Tuesday. The majority of the collective 11,153 contracts that changed hands did so on the ask side, IV edged higher at each strike, and open interest rose overnight -- all signs of buy-to-open activity. The options market isn't too confident any of these puts will finish in the money at the close on Friday, June 20 -- when front-month options expire -- as delta closed last night at negative 0.13, 0.21, and 0.35, respectively.

In fact, with peak levels of put open interest currently housed at each of these strikes, this recent put activity may provide a helping hand to the stock's short-term price action. As front-month expiration nears, an unwinding of the hedges related to these bets could translate into layers of options-related support for ORCL.

This bearish positioning among option traders is a bit surprising when looking at ORCL's technical backdrop. After taking a sharp bounce off its 200-day moving average in mid-December, the shares have rallied roughly 25%. Assisting the equity in its run higher has been its 60-day moving average -- currently located at $40.34 -- which served as a springboard for ORCL in both February and March. What's more, the stock tagged a 13-year high of $42.35 on May 27, but was more recently seen lingering near $41.33.

Off the charts, Maxim this morning started ORCL with a "buy" rating, and a price target of $48. Additionally, Oracle Corporation (NYSE:ORCL) is tentatively slated to unveil its quarterly earnings report the week of June 16 -- which coincides with front-month options expiration. The company has exceeded analysts' bottom-line estimates in two of the past three quarters, resulting in an average single-session post-earnings gain of 1.7% for the stock. For ORCL's fiscal fourth-quarter, Wall Street is calling for a per-share profit of 95 cents, an 8-cent improvement over the firm's year-ago results.

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