Oracle (NASDAQ: ORCL - option chain) shares are dropping along with much of the overall market. Today the company announced it would acquire Advanced Visual Technology, but what I am looking at is the recent insider activity on ORCL, which indicates that one of the company's president's, Safra Catz, exercised 500K of stock options and almost immediately sold the stock for about $10 million about two weeks ago at a price near $20 per share. Oracle has tumbled over the past month or so, and if those in the know are still selling at $3 less than recent August prices, then that is ringing some alarm bells for me. Granted, insider activity is not a perfect indicator, since he might have had needed cash for some reason, but if Ms. Catz thought the stock would be rising in the next few weeks, then she probably would have waited to sell, right? If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on ORCL.
This morning, ORCL opened at $20.19. So far today the stock has hit a low of $19.55 and a high of $20.19. As of 12:15, ORCL is trading at $19.78, down $0.53 (-2.6%). The chart for ORCL looks bearish and S&P gives ORCL a very positive 5 STARS (out of 5) strong buy ranking.
For a bearish hedged play on this stock, I would consider an October bear-call credit spread above the $21 range.
A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in two and a half weeks as long as ORCL is below $21 at September expiration. Oracle would have to rise by more than 6% before we would start to lose money. Learn more about this type of trade here.
ORCL hasn't been above $21 since early September and has shown resistance around $20.75 recently.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns and controls bullish hedged positions in ORCL. Both his trade and the one above can expire profitably at the same time, although with news like this, he is currently reconsidering his position.
Will Rich Ross really have a positive impact on Disney's movie operations?
Consumers sick of recession, may spend extra on holidays
Corrections, seasonality and Santa Claus
Reader Comments (Page 1 of 1)
10-01-2008 @ 7:27PM
Bill Miller said...
You obviously don't follow the company or the stock. First of all, if you were at all familiar with the company, you would know that Safra is a female..and a very intelligent woman at that! So your comment "but if Mr. Catz thought the stock would be rising in the next few weeks, then he probably would have waited to sell" just serves to make you look ignorant. Secondly, if you would bother to look at past trends, you would see that she makes such sales on a very regular basis. As a former investment banker executive, I'm sure she knows how best to handle her options. People like you only serve to drive MY stock down. Get your facts right!
10-01-2008 @ 10:54PM
Mike Sanders said...
Oracle has always been a great company, with a great product... I sold my postion, today, unaware that Catz had just sold 500k shares (my position was somewhat more modest). I still believe that Oracle has growth potential, but I needed the money to cover another position. I will very likey return and repurchase it, once my other positions are squared. Again, Oracle is right on, from the standpoint of IT, businesses and even the employees are aware, that they are working somewhere, where there is a future. I was first exposed to the company, while working at EDS, in the late-eighties.
10-24-2008 @ 2:38PM
Tony Cassa said...
Maybe the Federal Government should
place a 6 month freeze on executives who
get stock options from selling their option
shares. Katz got hers and ran through the door at $20! When will MR.Ellison and his management remember that their first obligation as officers in Oracle is to
Stockholder Equity?
Just a thought.
Tony