Since Oracle Corp (NYSE:ORCL) reported its fiscal year-end earnings ending May 30 on June 12, the company’s stock has remained relatively stable, presenting an attractive opportunity for traders interested in shorting out-of-the-money put options for generating income.
As of July 25, Oracle stock is trading at $117.39, not far from its June 12 value of $116.43.
Strong and Attractive Valuation
Oracle’s stock is presently undervalued in comparison to its peers. Analysts are projecting earnings per share of $5.56 for the year ending May 2024, resulting in a forward P/E (price-to-earnings) multiple of just over 20x. In contrast, other stocks like CrowdStrike (NASDAQ:CRWD) and Palo Alto Networks (NASDAQ:PANW) boast much higher P/E multiples, standing at 68 times earnings and 58.5x, respectively.
Shorting OTM Puts
Capitalizing on Oracle’s stable stock performance, traders can take advantage of the situation by shorting out-of-the-money (OTM) puts, generating income while anticipating potential future stock price appreciation. Although Oracle’s stock offers a modest 1.36% dividend yield, the combination of owning at least 100 shares of the stock and shorting OTM puts can provide additional income for short-term traders.
For example, examining the Aug. 18 expiration puts reveals that the $111.00 strike price put options carry an attractive premium of $83 cents. By shorting these puts, the trader immediately secures a 0.75% yield with just 24 days until expiration.
Additionally, as the strike price is over 5.1% below the current stock price, there is a relatively low risk that the strike price will be exercised, resulting in the trader having to buy the stock at $111.00. In such a scenario, the investor may or may not incur an unrealized loss. Nevertheless, the additional income received from selling the puts effectively lowers the breakeven price to $110.17, representing a 6.2% reduction from the current stock price.
Conclusion
In conclusion, patient traders/investors who perceive Oracle’s stock as potentially undervalued can find good income opportunities through shorting OTM puts, taking advantage of the stock’s current stability while awaiting potential price appreciation.
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Author Faith Yakubu 
