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Friday, April 12, 2024

Oracle Call Buyer Portends Big Bullish Moves Ahead

Today’s tickers: ORCL, CTCT, PLCE & KO

ORCL – Oracle Corp. – U.S. stocks are accelerating to the downside this afternoon as concerns over Europe once again sour a market that had welcomed better-than-expected economic data this morning. The sea of red includes Oracle Corp., which currently trades 3.45% lower on the day at $30.89, just before 1:00 PM in New York. The pullback in the software maker’s shares today has not deterred one optimistic trader from taking a bullish stance on the stock out in the March 2012 expiry. The investor appears to have purchased 10,000 calls outright at the Mar. 2012 $36 strike for a premium of $0.92 each. Profits are available to the trader at expiration next year in the event that Oracle’s shares jump nearly 20.0% to surpass the effective breakeven price of $36.92. Shares in Oracle hit $36.50 on May 3 of this year, their highest since 2000, but have not topped $36.92 in at least a decade. Options implied volatility on the stock is up 15.5% to stand at 41.3% this afternoon.

CTCT – Constant Contact, Inc. – Fresh prints in Constant Contact call options suggests at least one strategist expects shares in the provider of email marketing and online survey solutions to rally over the next few months. Shares in CTCT fell 3.6% in the first half of the session to stand at $22.55 just before 11:40 AM ET. It looks like more than 1,300 in-the-money calls changed hands at the Mar. $22.5 strike against previously existing open interest of 65 contracts. Call volume is hefty relative to open interest at that strike and in comparison to overall open interest on the stock of 4,157 positions. One investor appears to have purchased nearly all of the ITM calls this morning for an average premium of $2.80 apiece. The trader stands prepared to profit should shares in Constant Contact rally 12.2% over the current price of $22.55 to surpass the average breakeven point at $25.30 at March expiration. The Waltham, Massachusetts-based company is scheduled to report fourth-quarter earnings on February 2, 2012, well in advance of the March 16, 2012, expiration date on the calls.

PLCE – Children’s Place Retail Stores, Inc. – Shares in the specialty retailer of children’s apparel and accessories are up big today, rallying as much as 17.1% to an intraday high of $52.70, after the company posted better-than-expected third-quarter earnings of $1.33 a share and increased its 2012 earnings forecast. The stock was raised to ‘Buy’ from ‘Neutral’ with a 12-month target share price of $62.00 at Janney Montgomery. Call open interest in the front month suggests some strategists were busy-bees last week preparing for shares in the youth-apparel maker to rally sharply by November expiration. As an example, the majority of the 1,988 open call positions at the Nov. $50 strike appear to have been established by buyers last week for an average premium of $0.38 per contract. These same contracts, which grant buyers the right to purchase shares for $50.00 each, currently cost more than seven times as much at $2.75 per contract in early-afternoon trade. Investors today engaged in mixed trading at the Nov. $50 strike, buying and selling a total of 1,600 in-the-money call options. Bulls also targeted the Nov. $45 strike call ahead of earnings, buying roughly 540 of the contracts for an average premium of $3.50 each back on October 31. These deep in-the-money call options presently cost $7.40 a-pop to buy.

KO – Coca-Cola Co. – A long-dated short straddle with a shelf life of more than one year may result in handsome profits to its owner as long as the carbonated beverage maker’s shares are roughly flat at expiration. Coke’s shares are flat today at $67.01 in early-afternoon trade. It looks like one investor sold a 4,800-lot Jan. 2013 $67.5 strike straddle to pocket premium of $11.60 per contract. The trader keeps the full amount of premium received on the transaction as long as shares in Coca-Cola Co. settle at $67.50 at expiration day in 2013. Substantial premium pocketed on the play protects the investor from limited bullish or bearish moves in KO’s shares about the specified strike price through expiration. However, the trader may start to lose money on the position in the event that Coke’s shares rally 18.0% to surpass the upper breakeven point at $79.10, or should the stock plunge 16.6% to breach the lower breakeven price of $55.90, at expiration. 

Caitlin Duffy

Equity Options Analyst

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