IB Options Brief: Oracle Corp. Oracle Corp. (ORCL) & Eli Lilly and Co. (LLY)

Posted June 15th, 2012 by Caitlin Duffy in Unusual Activity

Options Remain Cautious On ORCL, LLY As Shares Rise - Today's Tickers: ORCL, LLY

ORCL ñ 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 ëBuyí from ëHoldí 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 makerís 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 ñ Eli Lilly and Co.
The drug makerís 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.

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