What to Do with Oracle Now and Check Out US Steel

Note: This post was written by Brian Stutland, President of Stutland Equities and a contributor to CNBC's "Options Action."

Oracle
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Oracle

Prior to Oracle's earnings report yesterday, one trader bought 20,307 Oct. 32-strike puts for $0.79 and sold the same number of the Jan. 34-strike calls for $0.98. (Read More:Oracle Targets Raised on Cloud Push, New Products)

This spread, known as a "Collar," was put on for a net credit of $0.19 and was likely used to protect the downside risk of holding a long stock position through the earnings announcement.

Spreads like these are useful when you are long stock and bullish over the long term, but believe the stock could dip in the near-term.

By buying the Oct. 32-strike puts, the trader is able to eliminate risk below that level. However, by financing the puts by selling the Jan. 34-strike calls, the trader foregoes profits from owning the stock if the shares trade above 34 at Jan. expiration.

How's The Competition Doing?

  • Microsoft
  • IBM
  • SAP
  • CA Technologies

One unusual trade that caught our eye yesterday was the sale of 5,000 US Steel Jan '14 5.0-strike puts for $0.34. The trade is unusual because 'X' closed yesterday at 20.13, making these puts 75% out of the money. This stockis heavily shorted and was down 3.5% yesterday on another analyst downgrade.

The company faces an unfavorable macroeconomic environment due to slowing demand in China, and an inability to keep raw material costs at US plants low enough to allow them to compete globally. This put sale could be part of a covered put, in which a trader shorts the stock and then sells a put to generate income and hedge against some risk on the upside.

How's The Competition Doing?

  • POSCO
  • ArcelorMittal
  • Nucor Corporation

Brian Stutland is the President of Stutland Equities and a contributor to CNBC's "Options Action."

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