Schaeffer's Midday Options Update Features Oracle.

CINCINNATI -- Today's Schaeffer's Midday Options Update features Oracle (NASDAQ:ORCL). The Midday Options Update contains a brief commentary on the day's most notable activity and a table listing the most-active calls and puts for the day. The Midday Options Update is published every day at www.SchaeffersResearch.com - the home of Bernie Schaeffer and Schaeffer's Investment Research.

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Options Update: Oracle's Earnings Spark Call Activity

This morning, we were treated to two tidbits of economic data, both of which came in better than expected. The Producer Price Index (PPI), which measures wholesale prices in the U.S., rose two percent during November, which was the sharpest increase since November 1974. Moreover, the core PPI increased 1.3 percent, its highest increase since July 1980. The consensus estimate was for an increase of 0.7 percent for the month, with an advance of 0.3 percent for the core PPI.

The other bit of news this morning was that housing starts increased by 6.7 percent last month to 1.588 million. Analysts expected an increase of 4.3 percent. Furthermore, October's housing-starts number was revised to reflect a drop of 13.7 percent. Original reports showed a drop of 14.6 percent for October. The 12-month period ending in November saw housing construction drop 25.5 percent. During November, new-homes sales dropped by 3.2 percent on a year-over-year basis, with demand falling 25.4 percent.

Most-Active Options Update

At 1:29 p.m. Eastern Time, the Dow Jones Industrial Average (DJIA - 12,415.9) has dropped 25.4 points, while the S&P 500 Index (SPX - 1,418.8) has slipped 3.65 points. The Nasdaq Composite (COMP - 2,415.7) has dropped nearly 20 points. At 1:30 p.m. Eastern Time, 2,560,986 calls have changed hands compared to 2,371,645 puts, equaling a single-day put/call volume ratio of 0.92. The CBOE's equity put/call volume ratio stands at 0.81, while the ISE's ratio weighs in at 0.82.

Oracle

While I was penning this morning's Opening View, I got the sneaky suspicion that I may be covering Oracle (NASDAQ:ORCL) at some point today. The company is in the spotlight thanks to earnings news, but rather than give the details here, let me direct you to Jocelynn Drake's article titled, Oracle Announces Earnings, where she summarizes this morning's earnings report.

Well, my hunch was correct, and I find myself staring down the barrel of heavy call option activity on the computer software firm. It appears that options players would rather focus on the company's net income and sales forecast for the upcoming quarter. The company's short-term, January 2007 17.50 call (ORQAW) and March 17.00 call (ORQBR) worked their way onto our notably active options list this afternoon. Let's take a look at the technical ramifications of this activity.

Earlier this month, ORCL gapped lower thanks to overall weakness in the tech sector. Unfortunately for the stock, a brief period of consolidation met the resistance of its 10-day moving average. While strong news today could have helped propel the shares through this overhead resistance, it wasn't in the cards. ORCL gapped lower when the market opened, and has rallied a little (but it is nowhere near approaching its 10-day trendline). Despite this mini-rally, ORCL is still nearly 4.5 percent lower on the day.

The equity's daily chart shows two technical developments that should concern those bullish on ORCL. First, today's gap lower has situated the stock below the 17.50 level, which acted as support since the end of September. Often times, prior support will switch roles and act as resistance when given a chance'; watch for that to happen here.

The second development that should be a bit disconcerting is the recent bearish cross that ORCL's 10-day moving average completed. More often than not, this technical formation precedes a continued downtrend.

Yes, there is potential support in place at the 17 level, but it is going to be tested as by ORCL's 10-day and 10-week moving averages continue to head lower. The week ending December 8 was the first week that the equity had finished below this trendline since the beginning of June. Yes, the stock logged impressive gains thanks to this support, but notice that the trendline has started to roll over. With the knowledge that prior support has a tendency to act as resistance when given the chance, this rolling over is not a fortuitous development.

If overhead technical resistance was the only roadblock that ORCL had in its path, I could still be pulled to the bullish camp. However, sentiment toward the software company could provide further problems. There is little in the way of potential short-covering support for ORCL, as slightly more than one percent of its float is sold short. Furthermore, it would take just two days to buy back the shorted ORCL shares at its average daily trading volume.

The other sentiment indicator that scares me a bit comes from ORCL's analyst ratings. According to Zacks, 15 of the 23 analysts following the firm rate it a "buy" or better. In fact, 52 percent of ORCL's total analyst rankings are of the "strong buy" flavor. This ratings configuration leaves the door wide open to potential upgrades, which could serve to pull the stock lower.

Yes, I am bearish toward ORCL, but it doesn't (in the immortal words of Dr. Seuss courtesy of the seasonal favorite How the Grinch Stole Christmas) nauseate me "with a nauseous super-naus." If you aren't inclined to shy away from ORCL, put away the 39-and-a-half foot pole, you could make money by playing some puts.

Click here to see a Daily Chart of ORCL Since June 2006 With 10-Day and 20-Day Moving Averages, and a Weekly Chart of ORCL Since February 2006 With 10-Week Moving Average: http://www.schaeffersresearch.com/wire?ID=17910.

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About Schaeffer's Investment Research (www.SchaeffersResearch.com)

Schaeffer's Investment Research, founded by Bernie Schaeffer in 1981, is a financial information and trading resources company. It publishes Bernie Schaeffer's Option Advisor, the nation's leading options subscription newsletter. The firm's contrarian approach focuses on stocks with technical and fundamental trends that run counter to investor expectations. The firm's website, http://www.SchaeffersResearch.com, is recognized as one of the leading information sources for stock and options traders and was cited as the top options website by both Forbes and Barron's. Click here for more details about Schaeffer's trading methodology: http://www.SchaeffersResearch.com/method.