Shares declined by 4.6% over seven days, or a -237% annual rate. The options position produced a 116.0% yield on debit for a +6,049% annual rate.
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.
[ORCL in Wikipedia]ORCL
I shall use the FEB series of options, which trades for the last time 65 days hence, on Feb. 20
Implied volatility stands at 33%, which is 1.9 times the VIX, a measure of volatility of the S&P 500 index. ORCL’s volatility stands in the 69th percentile of its annual range.
|Week||SD1 68.2%||SD2 95%||Earns|
ORCL has been in a downtrend since June 18. It hit a low on Aug. 24, the day of the China Panic, reversed to the upside in a counter-trend move until Nov. 5, and then resumed its declining. It remains above the August low.
Analysts in aggregate are neutral regarding ORCL's future prospects, with 44% of them issuing Strong Buy recommendations.
short the $34 puts and long the $32 puts,
sold for a credit and expiring Feb. 21.
Probability of expiring out-of-the-money
The risk/reward ratio is 2.7:1.
The zone of profit in the proposed trade covers a $3.50 move either way. The biggest immediate move after each of the past four earnings announcements was $4.19, and the average was $2.29.
Decision for My Account
I have opened a position on ORCL as described above.
-- Tim Bovee, Portland, Oregon, Dec. 16, 2015
Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.
Elliott wave analysis tracks patterns in price movements. StockCharts has a good explainer. The principal practioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading.
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