Implied volatility in Oracle (NASDAQ: ORCL)

Oracle Corp. (ORCL) recently completed its acquisition of Sun Microsystems. Also, the market expects the software company to announce earnings figures around March. 18. At least one investor is betting on a range in the stock, which reached a new high last month.

ORCL shares are currently trading at $23.75, relatively unchanged on the day, and off roughly 7% from their January high of $25.33.

During midday trading, two large blocks of June 23 puts and June 24 calls crossed the tape thanks to an investor who sold the strangle for a premium of $2.60 per spread. Nearly 40,000 contracts have accumulated in each strike, and open interest of the 23-strike puts is currently 9,900 contracts compared to the 3,300 contracts of open interest in the 24-strike calls.

The investor who sold this strangle is looking for ORCL shares to close between $20.40 to the downside and $26.60 to the upside at June options expiration. Investors retain a maximum profit of $2.60 (the premium collected) if ORCL shares close between $23 and $34, and will lose money if the stock moves significantly in one direction or the other (maximum loss is unlimited in this strategy). For this reason, selling a strangle such as this is a riskier trade as investors call for volatility to come in prior to expiration.

Implied volatility of the June 23 puts and the June 24 calls is roughly 26, compared to a 30-day historical volatility of 25.