Oracle Covered Call Sellers Buy Back Options Ahead of Earnings: Options Chatter

The tally of outstanding call options that give their holder the right to buy Oracle shares at $220 each by the end of next week fell by 3,360 contracts to 10,680 contracts Monday, the biggest decline among options tied to the tech giant.

The open interest declined as the stock price climbed above that strike price, putting the contract well in the money and increasing the odds that the call options could be exercised before they expire on Dec. 19. That incentivizes sellers of covered calls to buy back the contracts and close those positions if they want to hold on to their Oracle shares.

Shares have climbed 12% from a closing low of $197.03 reached on Nov. 25, when the stock gave back almost all of its gains since blowout fiscal fourth quarter financial results sent Oracle on its way to an all-time high.

After soaring to an all time high of $345.72 in early September, the stock started its retreat amid a growing debate over whether a bubble has emerged in the field of artificial intelligence and questions swirled over OpenAI’s ability to boost its revenue fast enough to raise the billions of dollars it needs to fund its cloud contracts with Oracle. By Nov. 25, the stock had plunged about 40% from that record.  

“In our view, sentiment has tended to swing too far and too fast in both directions without allowing for a reasonable assessment of middle-ground outcomes,” JPMorgan analysts including Mark Murphy wrote in a note to clients Tuesday.  “Diversifying the RPO balance across an expanded list of investment-grade AI customers would be one positive step, which we believe is very likely to be announced on Wednesday.”

Some covered call sellers are buying back the contracts they sold in case the stock jumps again after the company delivers its fiscal second quarter results late Wednesday.

Analysts, on average, expect Oracle to report a 50% jump in its remaining performance obligations, a measure of bookings, to $519.4 billion, according to estimates compiled by Bloomberg. Cloud revenue is seen climbing 35% to $8.04 billion, according to consensus.