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Options Remain Cautious On ORCL, LLY As Shares Rise

Options brief will resume June 25, 2012.

Today’s tickers: ORCL, LLY & NIHD

ORCL – Oracle Corp. – Shares in software giant, Oracle Corp., are up 2.3% this afternoon at $27.53 amid a broad-based rally in equities and after the stock was raised to ‘Buy’ from ‘Hold’ with a 12-month share price target of $33.00 at ThinkEquity LLC. Stocks are trading higher on speculation global central banks may take coordinated action to counter possible market shocks in the wake of Greek elections this weekend. The software maker’s shares may be on the rise today, but a sizable put spread initiated in the September expiry this morning suggests one strategist is keeping an eye on potential bearish movement in the price of the underlying. It looks like the trader snapped up 4,230 puts at the Sept. $26 strike and sold the same number of puts at the lower Sept. $23 strike, all for a net premium outlay of $0.72 per contract. The trader makes money on the spread if shares in ORCL slip 8.2% to breach the breakeven price of $25.28, while maximum potential profits of $2.28 per contract are available in the event shares plunge 16.5% to settle below $23.00 at September expiration. Oracle is scheduled to report fourth-quarter earnings after the final bell next Thursday.

LLY – Eli Lilly and Co. – The drug maker’s shares rallied to their highest level since October 2008 today, trading up as much as 0.90% to $42.17. Trading traffic in Eli Lilly options is fairly evenly distributed between calls and puts, however, the single largest transaction in the contracts today appears to be a protective or potentially an outright bearish stance on the near-term performance of the stock. Volume at any one strike today is heaviest in the July $40 put where more than 10,000 contracts changed hands against open interest of 6,181 lots. One hour into the session a block of 8,417 puts traded to the middle of the market at a premium of $0.23 per contract, while the remainder of the printed volume was mostly purchased. The trader or traders driving the action in the July $40 strike put may be locking in gains on a long position in the underlying shares or establishing downside protection in case the stock should falter in the next five weeks to expiration. Alternatively, buyers of LLY put options could be taking an outright bearish stance on the stock in the expectation that shares in Lilly have run out of steam for the time being. Eli Lilly & Co. reports second-quarter earnings prior to the opening bell on July 25th, the week following July options expiration.

NIHD – NII Holdings, Inc. – The provider of wireless services in Latin America popped up on our scanners this morning after a large three-way spread was initiated in the September expiry options. Shares in NII Holdings, Inc. are trading lower this afternoon, down 0.90% at $11.05, reversing earlier gains. The stock has been crushed during the past year, down 75.0% from the July 7, 2011, 52-week high of $44.00, hovering around its lowest lows of the financial crisis. The three-legged options play on the stock today makes money if NIHD shares rally during the next few months. It appears one strategist sold 6,000 puts at the Sept. $9.0 strike to offset the cost of purchasing a 6,000-lot Sept. $13/$15 call spread, done at a net premium of $0.09 per contract. The options player profits at expiration if shares in the wireless provider soar 18.5% to exceed the effective breakeven price of $13.09, and could walk away with maximum potential profits of $1.91 per contract given a more than 35.0% move higher in the share price over the stated time horizon. On the flip side, the trader could lose the full premium paid to initiate the bullish position if shares in the name fail to top $13.00 at expiration. Further, the strategist could wind up having 600,000 shares of the underlying put to him at $9.00 each in the event NIHD shares extend losses and the puts land in-the-money at expiration. Shares in the name last traded above $15.00 in April. Second-quarter earnings from the wireless provider are expected out prior to the opening bell on July 26th.


Caitlin Duffy

Equity Options Analyst

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