OPTIONS REPORT: Traders Have Faith In Oracle, Semiconductors

16th Jun 2010 20:30

By Brendan Conway Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--As technology stocks drifted modestly higher earlier in the day, bullish options traders Wednesday expressed hope for upside in Oracle Corp.'s stock while others looked for the same in semiconductors. June options expire Friday, meaning traders can use the market to speculate on very short-term moves in stocks and options, or they can look to longer-dated contracts. In the case of both Oracle and the Semiconductor HOLDRs Trust (SMH), an exchange-traded fund that tracks the chip sector, a number of investors looked to next month for better news in technology one day after the Standard & Poor's 500 moved back to positive territory for the year. In Oracle, traders showed up early in the session with what traders said was call buying in the business-software giant's July $24 contracts. A call conveys the right to buy stock. At a midday cost of 37 cents, the contract makes money if shares in Oracle rise above $24.37 before expiration on July 16. From recent levels, that means a gain of 5.2% or more. Oracle delivers its much-anticipated quarterly earnings report on June 24, meaning a buyer of July calls is able to capture upside in the stock if the company delivers positive earnings news. Traders could also simply be looking for shares in a leading technology company to regain some of the ground they lost in May's slide. At midday Wednesday, Oracle shares were down 0.4% to $23.11. Meanwhile, in the Semiconductor HOLDRs Trust, similarly bullish traders gravitated to $29 and $30 calls that expire in July. At the recent price of 79 cents, the $29 contracts are in the black if the fund moves above $29.79 before mid-July. Sector giant Intel Corp. reports quarterly earnings a few days before the contracts expire, meaning these traders, like those scooping up the Oracle contracts, have exposure to earnings news. In this case, a good number of the trades appeared to be the work of retail investors moving back into the sector, according to Steve Claussen, chief investment strategist at OptionsHouse LLC. Sizable numbers of retail traders warming to semiconductor stocks would be notable and "could spell better days for the markets as a whole," Claussen said. Elsewhere in options, notable trades crossed the tape in options on CIT Group Inc., a lender to small- and medium-sized businesses. Traders described those trades as bearish in nature. Midmorning, a trader appeared to buy about 1,300 July $37 CIT puts while selling twice the number of July $34 puts, according to Caitlin Duffy, equity options analyst for Interactive Brokers. A put conveys the right to sell shares. The trader paid $1.44 for the $37 contracts and pocketed twice the second contracts' premium of 62 cents, paying a net 20 cents for the position, she said. With the stock down 1.1% to $37.89 recently, the trader is readying for moves below $37, but not for an extremely bearish turn. Selling the $34 puts means the position suffers losses the lower the stock drops below that level. Traders here are looking for a pullback, and have "positioned themselves well to benefit nicely if shares fall to $34," but aren't readying for Armageddon, Duffy said. Also notable in the day's trading was continued interest in BP Plc options on a day when the company announced it would not pay a dividend the rest of the year. Traders focused more on put options earlier in the session but activity in calls rose later in the day, with 384,000 puts compared with 335,000 calls having changed hands as the clock ticked past 3 p.m. EDT, according to Track Data. Trading in BP's near-term put contracts expiring Friday was notably active as low as the $27.50 strike. But near-term $33 and $34 calls also traded actively. -By Brendan Conway, Dow Jones Newswires; (212) 416-2670; [email protected] (END) Dow Jones Newswires June 16, 2010 15:30 ET (19:30 GMT)