ORCL Analysis

Update 6/26/2015: ORCL gapped down sharply after earnings were published, moving the price just below the boundary of probability. The Elliott wave count is bearish, portending further decline, so I've exited now rather than waiting further for an upward retracement which may never come.

Shares declined by 7.8% over ine days, or a -318% annual rate. The optons position produced a 44.2% loss on debit, for a -1,791% annual rate.

Click on chart to enlarge.

ORCL 1 year daily bars (left), 10 days 30-minute bars (right)

ORCL is in the 2nd wave of its rise of October 2014. I've counted the fall after earnings were published as a C wave within that 2nd wave correction. It could just as easily be a continuing of the A wave or the B wave -- the chart is quite ambiguous at this level.

In any case, the Elliott wave count presents a bearish bias, which my exit decision reflects.

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The enterprise software and services company Oracle Corp. (ORCL), headquartered in Redwood  City, California and best known for its database management systems, publishes earnings after the closing bell on Wednesday.

I shall use the JUL monthly series of options, which trades for the last time 31 days hence, on July 17, in constructing the Strangle, and the JUN4 weekly series, which completes trading nine days from now, on June 26.

[ORCL in Wikipedia]

ORCL

Ranges

Click on chart to enlarge.

ORCL at 11:05 a.m. New York time, 90 days 2-hour bars

ORCL is at the top of a sideways range that has been running since March.

ORCL has on average moved $1.83, or $4.4%, immediately after the last four earnings announcements. The maimum was $2.67, or 6.5%.

Implied volatility stands at 24.5%, which is 1.7 times the VIX, a measure of volatility of the S&P 500 index. ORCL’s volatility stands in the 75th percentile of its most recent rise.

I've used the JUL options series in calculating the ranges.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart	Earns
Upper	47.69	50.81	44.94	46.38
Lower	41.43	38.31	42.21	42.72
Gain/loss	7.0%	14.0%

Implied volatility 1 and 2 standard deviations; chart support and resistance, average earns move
The Trade

My goal in constructing the strangle is to cover the earns range, which also takes care of the one standard deviation range, with a premium of $1 or better and a probability of expiring profitably of above 80%.

Strangle, short the $47 calls and long the $42 puts,
sold for a credit and expiring July 18
Probability of expiring out-of-the-money

JUL	Strike	OTM
Upper	47	86.1%
Lower	42	83.7%

The premium on the proposed trade is $0.67.The stock at the time of analysis was priced at $44.64.

My requirement are less stringent for hedged positions, such as iron condors. I'm aiming for a  probability expiring profitably of 70% or greater, with a risk less than double the reward.

Iron Condor, short the $46 calls and long the $47 calls,
short the $43 puts and long the $42 puts,
sold for a credit and expiring June 27
Probability of expiring out-of-the-money

JUN4	Strike	OTM
Upper	46	73.7%
Lower	43	73.5%

The premium is $0.38, The stock at the time of anaysis was priced at $44.61. The trade leaves $1 on either side of the earns range outside the profit zone.

Decision for My Account

I'm reluctant to leave so much of the earns range outside of the zone of profit. ORCL has been a pretty steady leapfrog after announcements.

So, I've opened the Strangle position, as described above, but am passing on the corresponding iron condor.

-- Tim Bovee, Portland, Oregon, June 17, 2015

References

My volatility trading rules can be read here.


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Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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Based on a work at www.timbovee.com.