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Options Trader Plants Bearish Augury on Oracle

Today’s tickers: ORCL, SKX, EEM, TM, ZION, DHI, BBBY, RL, MCD & MYGN

ORCL – Oracle Corp. – A massive bearish transaction on software manufacturer, Oracle Corp., paints a gloomy picture for Oracle investors through expiration in June. Shares are trading 0.15% lower on the day to $23.73 with just under two hours remaining in the trading session. The pessimistic portent is a bearish risk reversal transacted in the June contract on the stock. The trader responsible for the reversal sold 34,700 calls at the June $24 strike for an average premium of $1.37 each in order to offset the cost of purchasing 34,700 put options at the lower June $23 strike for $1.24 premium apiece. A net credit of $0.13 per contract pads the investor’s wallet as long as the June $24 strike call options remain out-of-the-money through expiration day. Additional profits, or downside protection on a long stock position, kick in if shares of the underlying trade under $23.00 ahead of June expiration.

SKX – Sketchers USA, Inc. – Street and fashion footwear design firm, Sketchers USA, received a vote of confidence by a bullish options player today despite the 4.25% decline in shares of the underlying stock to $28.54. The investor etched optimism into the July contract on Sketchers by utilizing the ratio call spread strategy. The trader purchased 1,500 calls at the July $30 strike for a premium of $3.00 apiece, spread against the sale of 3,000 calls at the higher July $40 strike for an average premium of $0.60 each. The net cost of the transaction amounts to $1.80 per contract. In the next six months to expiration, SKX-shares must rally 11.40% from their current value in order for the investor to breakeven at a share price of $31.80. Maximum potential profits of $8.20 per contract accumulate should shares explode 40% higher to $40.00 ahead of expiration in July.

EEM – iShares MSCI Emerging Markets Index ETF – An enormous bullish bet on the EEM today implies one investor is positioning for a 5%-11.25% rebound in global markets by March expiration. Shares of the emerging markets exchange-traded fund, which was developed by MSCI as an equity benchmark for international stock performance, dipped slightly lower by 0.20% during the current session to $39.55. Optimism on the fund came in the form of a large-volume call spread in the March contract. The trader responsible for the transaction purchased 60,000 calls at the March $41 strike for an average premium of $0.88 each, and sold the same number of calls at the higher March $44 strike for about $0.21 premium apiece. The spread cost the options player $0.67 per contract, but yields maximum potential gains of $2.33 apiece should shares rally up to $44.00 by expiration day. The investor makes back the premium paid for the transaction if shares increase at least 5% to the effective breakeven price at $41.67. The investor enjoys maximum potential profits of $2.33 per contract only if the price of the underlying stock jumps 11.25% from the current value ($39.55) to $44.00 ahead of expiration.

TM – Toyota Motor Corp. ADS – Toyota-bears are shifting into high gear today as additional negative news regarding brake problems with the Prius stokes the flames of pessimism striking the world’s largest automaker from all sides. The firm took another blow in the form of a downgrade to ‘neutral’ from ‘buy’ at Goldman Sachs Group following the worldwide recall some 7.6 million vehicles. Shares are down 7.25% to $72.51 today as investors continue to receive more bad news about the car manufacturer from sources as varied as Apple Inc. founder, Steve Wozniak, to the Japanese government. Brake-related issues with Toyota’s Prius prompted Japan’s government to mandate an investigation of the world’s best-selling hybrid car. Option traders accelerated bearish moves on Toyota today by scooping up put options in the February contract. Investors bought more than 1,100 puts at the February $60 strike for an average premium of $0.22 apiece. Another 2,000 puts were picked up at the higher February $65 strike for about $0.55 each, where option volume exceeds 5,000 contracts on paltry previously existing open interest of 790 lots at that strike. Put volume tipped the scales at the February $70 strike as investors exchanged more than 11,000 contracts by midday on the East coast. It looks like at least 4,400 of the puts at the February $70 strike were purchased for an average premium of $1.57 each. The buying interest at that strike indicates traders are positioning for another 5.50% decline in Toyota’s shares to the breakeven price of $68.42 ahead of expiration. Options implied volatility is up sharply as swirling bad news boosts investor uncertainty. Volatility is currently up 24.28% to 42.66%, the highest reading since May of 2009.

ZION – Zions Bancorp. – Bullish options activity on Zions Bancorporation provided a glimmer of optimism in the face of sharp share price erosion today. ZION’s shares are trading 5% lower to stand at $18.91. The light at the end of the tunnel came in the form of a call spread in the July contract. The bullish investor responsible for the transaction purchased 4,000 calls at the July $21 strike for a premium of $2.20 apiece, and sold 4,000 calls at the higher July $25 strike for about $0.90 each. The net cost of the spread amounts to $1.30 per contract. Maximum potential profits of $2.70 per contract are available to the investor if shares of the underlying stock surge 32% from the current price to $25.00 by expiration in July. The trader breaks even on the trade if ZION’s shares rise at least 18% to $21.30 ahead of expiration day.

DHI – D.R. Horton, Inc. – Shares of the homebuilding company are lower today by 1.60% to $13.00, paring a small portion of significant gains experienced during yesterday’s trading session. However, options activity by one investor in the August contract indicates resiliency in bullish sentiment on the stock. It looks like the optimistic investor initiated a bullish risk reversal to position for a rebound in shares within the next seven months. The reversal play involved the sale of 11,763 put options at the August $13 strike for a premium of $1.60 apiece, spread against the purchase of the 11,763 calls at the same strike for $1.80 each. The investor paid just $0.20 per contract for the transaction, and stands ready to amass potentially unlimited profits above the breakeven point at $13.20. The sale of the puts, which significantly reduced the cost of the reversal trade, indicates the trader is willing to bear the risk that shares of the underlying stock could be put to him at an effective price of $13.20 by expiration.

BBBY – Bed Bath & Beyond, Inc. – Home furnishings retailer, Bed Bath & Beyond, attracted bullish attention during the trading session despite the 1% move lower in its shares to $39.67. Investors expecting an increase in the value of the underlying by expiration in March purchased approximately 5,000 in-the-money call options at the March $39 strike for an average premium of $1.70 apiece. Call-buyers are positioned to accumulate profits to the upside if BBBY’s shares rally about 3% from the current price to surpass the breakeven point at $40.70 ahead of expiration.

RL – Polo Ralph Lauren Corp. – Options traders are showing a clear preference for put options on apparel and fashion retail company, Polo Ralph Lauren, today with shares down nearly 8.5% to $78.45. The 5.5% increase in third-quarter profits reported by RL today did not distract investors from the firm’s fourth-quarter guidance. Polo revealed that expenses involving Asian operations are likely to cut into fourth quarter profits by as much as $0.10 a share. Investors traded put options 3.3 times to each single call option in play on the stock in morning trading. Traders exchanged nearly 8,500 contracts on the Polo Ralph Lauren within the first fifty minutes of the session.

MCD – McDonald’s Corp. – Shares of the largest restaurant company in the world are trading 2.40% higher this morning to $65.54 perhaps after Goldman Sachs Group added the fast-food firm to its Americas conviction buy list. Investors drove up call volume at the February $67.5 strike to 4,168 contracts, which exceed total existing open interest at that strike, in the first hour of the trading day. It looks like some traders are buying the call options to position for continued bullish momentum in the price of the underlying through expiration. Roughly 24,700 contracts changed hands as of 10:33 am (EDT).

MYGN – Myriad Genetics, Inc. – Call options are in play on healthcare company, Myriad Genetics, this morning after the firm posted better-than-expected fiscal second-quarter earnings per share of $0.36, which exceeded average analyst expectations by 1 penny per share. Shares are currently trading 3% higher to $24.71. Investors exchanged more than 4,500 contracts on MYGN in the first hour of the trading day. Options implied volatility contracted 26.78% to 29.33% following earnings.


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