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Today, the Barchart Unusual Stock Options Activity Report shows that a large institutional trader has bought many call options in Oracle Corp (ORCL) that expire in 2 weeks - a significant bullish signal.
This could help push ORCL stock higher, especially since the company is now seen as a new AI (artificial intelligence) tech play.
ORCL stock is trading at $117.16 in morning trading on July 12. The Barchart report shows that a large tranche of over 5,900 call options expiring on July 28 were traded at the $118 strike price.
This strike price is 84 cents, or 0.71% over today's price, i.e., the option is trading “at the money” (ATM). The premium paid was $2.45 at the midpoint. Therefore, the breakeven point is $120.45, or just $3.29 over today's price (i.e., $120.45 - $117.16).
That means ORCL stock has to rise just 2.80% for the trader to have an “in-the-money” (ITM) profit.
This is not far for the stock to rise, and the trader can also sell out any time before the expiration period. That means that the investor is likely very bullish on ORCL stock.
Keep in mind that the number of options traded today is now almost 50x the existing number of call options that were outstanding. That can be seen in the “Vol/OI” column above. This shows that there is a large buyer out there.
Why ORCL Stock Looks Attractive
Recently analysts have been upgrading Oracle Corp based on its AI generative software initiatives in its HR (human resources) software. For example, RBC Capital Corp came out with a new report on the stock recommending it with an “Outperform” rating.
As many tech stocks have been rising based on their AI content, Oracle Corp was set to make its debut in this arena.
Moreover, out of 36 analysts covering ORCL stock, according to Yahoo! Finance, 10 of them have a strong buy on the stock. Moreover, their average price target is $124.66 per share, 7.9% over today's price.
The fundamental reason for this is that Oracle Corp is now very profitable. For example, Oracle recently reported its fiscal year results for the year ending May 30. It showed that for the trailing 4 quarters Oracle had generated $8.47 billion in free cash flow (FCF).
As can be seen in the table above from the company, this FCF level was significantly higher than both last quarter's trailing 4 quarters' FCF as well as a year ago results. In fact, the $8.47 billion in FCF was 68% higher than the $5.028 billion it generated a year ago.
That means that the stock deserves to have a premium rating. In effect, the market is moving ORCL stock higher to give it that rating.
For example, analysts now project $5.56 in earnings per share for the year ending May 2024, according to Seeking Alpha. That puts ORCL stock on a forward P/E (price-to-earnings) multiple of just over 20x.
However, many of its peers have much higher ratings. For example, CrowdStrike (CRWD) trades for 68 times earnings, and Palo Alto Networks (PANW) is at 58.5x earnings. So, it appears that slowly ORCL is starting to pick up some of its peers' higher valuations.
These could be several of the reasons why investors are buying large amounts of ORCL stock call options today. Either way, the fundamentals of Oracle Corp look very attractive here.
On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
