Software giant Oracle (ORCL) has remained within a tight trading range for nearly a year. As the Nasdaq nears its all-time highs, Oracle stock is trading above all of its moving averages and is less than 7% off its all-time high. The anticipation builds as Oracle prepares to release its earnings report on Tuesday.
Recent Market Movements
The Nasdaq composite experienced a 2% surge in higher volume recently, which boosted several stocks, including chip giant Broadcom (AVGO), which gained 6.1%.
This positive market movement has set the stage for Oracle’s upcoming earnings announcement.
Oracle’s Earnings Prospects
Oracle’s stock rallied significantly on March 12 following a positive earnings report. The company reported a 16% increase in adjusted profit, reaching $1.41 per share, and a 7% rise in revenue to $13.3 billion.
These results were in line with expectations, as was the guidance for the upcoming quarter.
A key highlight was Oracle’s cloud services and license support segment, which reported a 12% increase in revenue year-over-year, reaching $9.96 billion.
Cloud revenue, in particular, jumped 25% to $5.1 billion, driven by strong demand for Oracle’s artificial intelligence servers.
CEO Safra Catz mentioned that the company’s goal of $65 billion in annual revenue by fiscal 2026 might be conservative given its current momentum.
The FactSet consensus for Oracle’s fiscal fourth-quarter results, due Tuesday after the close, anticipates a 13% decline in adjusted profit to $1.15 per share, with a 6% increase in revenue to $14.6 billion.
Market Dynamics and Related Stocks
Sentiment in the enterprise software sector has been mixed following earnings sell-offs for companies like Salesforce (CRM), ServiceNow (NOW), Shopify (SHOP), and Workday (WDAY). Despite these challenges, Oracle has shown resilience.
In comparison, other tech giants have had varying fortunes. Broadcom, for instance, saw its stock move positively following a 6.2% gain.
The company’s earnings report is expected to show an 18% decline in earnings to $7.66 per share, although revenue growth is projected to accelerate by 38% to $12.1 billion.
Options Trading Strategy
An effective options trading strategy around earnings can help investors generate income with manageable risk.
Here’s a step-by-step guide on how to implement a call-option trade for Oracle:
Identifying Bullish Setups
- Select Top-Rated Stocks:
Look for stocks with a bullish chart. These might be in early-stage bases, showing support at their 10-week lines, or trading tightly near highs.
- Check Strike Prices:
Use your online trading platform or cboe.com to identify strike prices. Ensure the option is liquid, with a tight spread between the bid and ask.
- Choose the Right Strike Price:
For Oracle, when it traded around $123.75, an out-of-the-money weekly call option with a $124 strike price and a June 14 expiration was available with a premium of $4.75 per contract. This premium represented 3.8% of the underlying stock price.
Managing Risk and Expiration
- Calculate Potential Loss:
One contract allows the holder to buy 100 shares of Oracle at $124 per share. The maximum potential loss is the premium paid, which in this case is $475.
- Determine the Break-Even Point:
To break even, Oracle’s stock would need to rise to $128.75, factoring in the premium paid.
- Evaluate the Expected Move:
Based on the at-the-money strike price of $123, the expected move in the options market for Oracle was about 9 points up or down. This is calculated by adding the at-the-money call premium and the put premium for the June 14 contract.
Investing in options ahead of earnings reports can be a strategic way to generate income while managing risk.
For Oracle, with its positive outlook and strategic growth in cloud services, a well-planned options trade could offer a promising opportunity.
As always, investors should perform thorough research and consider their risk tolerance before entering any options trade.
