Earnings Preview: Oracle Corporation (ORCL)

Bearish options betting has ramped up ahead of Oracle Corporation (ORCL) earnings

Sep 14, 2016 at 11:07 AM
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All eyes are on Oracle Corporation (NYSE:ORCL), ahead of its earnings report tomorrow night. In fact, J.P. Morgan Securities expressed its confidence in the stock earlier, raising its price target to $41 from $38. Below, we'll examine how the rest of Wall Street -- in the options pits and beyond -- feels about ORCL heading into earnings.

Starting in the options arena, it looks like bearish traders have dominated. Based on data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open nearly twice as many ORCL puts as calls over the past two weeks. The resultant put/call volume ratio of 1.84 rests just 6 percentage points from an annual peak.

Puts are relatively hot today, too, running at 1.3 times the expected intraday clip. ORCL's near-the-money September 40 put is the most active strike, and ISE data suggests at least some positions are being newly purchased. In other words, these put buyers believe the stock will slip below the round-number $40 level by this Friday's close, when front-month options expire.

Historically speaking, ORCL has been a mixed bag, post-earnings. Looking back eight quarters, the stock has been lower half the time in the session after the company reports, and higher the other half. This time around, the options market is pricing in a 6.1% swing in either direction, the day after earnings.

Speaking of mixed bags, that's exactly what we find among the brokerage crowd. Of the 25 analysts tracking ORCL, 14 rate the shares a "buy" or better, and the other 11 maintain either a "hold" or "sell" opinion. Not to mention, the consensus 12-month price target of $44.29 represents only a modest premium to the current perch -- though it is in annual-high territory.

On the charts, Oracle Corporation (NYSE:ORCL) has come a long way since its two-year low of $33.13 in January. Up 0.6% today at $40.42, the stock has advanced 22% over that time period. However, after a long period of consolidation in the $41-$42 zone, the shares slipped last week on this fundamental hiccup, and have been testing the $40 area in recent sessions. 

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