ORCL Analysis

Update 12/23/2015: ORCL reached 54% of its potential profit and I exited.

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.

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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.

[ORCL in Wikipedia]

ORCL

I shall use the FEB series of options, which trades for the last time 65 days hence, on Feb. 20

Ranges

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.

Ranges implied by options and earnings

Week	SD1 68.2%	SD2 95%	Earns
Upper	42.30	45.97	42.82
Lower	34.96	31.29	34.44
Gain/loss	9.5%	19.0%

Implied volatility 1 and 2 standard deviations; maximum earns move
The Trade

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.

Iron condor, short the $41 calls and long the $43 calls,
short the $34 puts and long the $32 puts,
sold for a credit and expiring Feb. 21.
Probability of expiring out-of-the-money

FEB	Strike	OTM
Upper	41	75.5%
Lower	34	82.6%

The premium is $0.54, which is 27% of the width of the position’s wings. The stock at the time of entry was priced at $38.70.

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

References

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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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.

License



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Based on a work at www.timbovee.com.