Database software company Oracle (ORCL) has been trading in a range since June. One trader sees shares sliding lower in the next six months.
That’s based on the March 2024 $95 put option. With 196 days until expiration, 3,631 contracts traded compared to a prior open interest of 103, for a 35-fold rise in volume on the trade. The buyer of the puts paid $2.04 to make the bearish bet.
Shares recently traded for just over $120, so they would need to drop about $25, or just over 20 percent, for the option to move in-the-money.
That would put shares right around their current 200-day moving average, but still well off their 52-week lows of $60.78.
Oracle has grown its earnings by just 4 percent over the past year, and the stock’s 60 percent rally has taken it from 13 times earnings to 20 times earnings. That jump in valuation makes a pause look reasonable in the months ahead, and even potentially a slight pullback.
Action to take: Investors interested in the company should look for a drop lower before buying, as the stock looks overvalued here. Shares also yield about 1.4 percent, but patient investors could get a higher starting yield.
For traders, the March puts give a pullback in shares plenty of time to play out. Traders could buy the puts and close the position much earlier on another market drop.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.