3 Oracle Earnings Trades with Options

This exact article was released before the market opened this morning to premium users.

Oracle, $ORCL, reports earnings after the market closes on Tuesday. This stock has had a rough few months. Take a look at the chart below for $ORCL on a daily timeframe. The big Head and Shoulders top is prominent and played out to a target below 24.85, reaching a low of 24.72. But since then it has been in a rising trend making higher highs and higher lows. It still has some work

to prove that it wants higher on this timeframe. Despite the Moving Average Convergence Divergence (MACD) indicator rising and the Relative Strength Index (RSI) trending higher, the 50 and 100 day Simple Moving Averages (SMA) are sloping lower. There is resistance above at 31 and then 32 followed by 32.50, 33.50 and 34. Support comes at 28 followed by 26.60 then 26 and then 24.75. Stepping back to the weekly timeframe shows that the RSI is stalling at the mid line, not

very bullish, despite the MACD continuing to improve. There is good news in that all of the SMA’s are rising on this time frame except the shortest 20 week SMA. A move above 29.25 sees resistance at 30.65 and then 34 followed by 36. Support comes at 27 then 26, 24.80 and 24 lower. Stepping back even further to the monthly view we can get a picture view of support and resistance. This chart shows a Hammer reversal candle in August that looks to confirm in September if the current levels hold. More importantly for a short term earnings trade it shows

strong support at 28 and then 27 and 26 before 24 and 21. It also shows resistance at 33 followed by 36. All of the charts are biased to the upside and boiling it down, support overlaps at 28, 26 and 24.80 and resistance at 31, 34 and 36. What do we do with all this? Well, $ORCL has weekly options so lets take a look at the options board. The implied volatility is elevated at 75% heading into earnings and the at the money straddle implies a 5.7% or 1.65 move by Friday, so there are a few possibilities.

Trade 1: Bullish: Buy Write – Buy $ORCL and sell the September 32 weekly Call
This could be executed at 28.17 near the close Monday and would yield a 2.95% return if $ORCL closes over 29 on Friday. Adding the September weekly 26 Put for 11 cents adds some downside protection if it falls.

Trade 2: Bet on Volatility Falling: Sell the 31/27 Strangle
By selling the Weekly 31 strike call and the 27 strike put you have protection beyond the implied move to 30.65 to the upside and 27.35 to the downside and collect at 38 cent credit based on prices near the close Monday. This covers a 6.9% move.

Trade 3: Bullish: Buy 30/31 Call Spread and Sell the 27 Put
By buying the 30 Strike call and selling the 31 strike call, the first resistance, and then selling the 27 strike put, the total cost was 7 cents near the close Friday. You may end up owning $ORCL at 27 if it falls under 27 but with strong support at 26 that may be acceptable. The payoff on a move up to 31 resistance would be 1.00 or over 1400%.

Which is your poison?

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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