Oracle Corporation (NYSE:ORCL) has been in a holding pattern of late. But if history is any indicator, that’s likely to change with earnings on the docket Thursday evening.
And for those traders willing to make a short-term bet ORCL stock won’t disappoint, a moderately bullish and limited-risk out-of-the-money butterfly looks well-suited for the occasion. Let me explain.
If someone asked me if ORCL stock was a mover-and-shaker on its price chart, I’d have to say no. But when it comes to earnings, Oracle shares have proven to be very consistent in gapping and putting together decent size moves.
Over the past few quarters, Oracle’s ability to dazzle and disappoint has been supported by price reactions of -7.67%, 8.57%, 6.23%, -4.31% and -4.74%. Notice, I didn’t say ORCL stock was consistent with the direction. In fact, the reaction in shares in the immediate aftermath of earnings have been equally generous to bulls and bears.
As for Thursday night’s report, analysts expect ORCL stock to report profits of 68 cents a share and up from last year’s Q2 earnings of 61 cents. Revenue is forecast to grow by 5.3% to $9.55 billion.
Particular attention will likely be paid to the company’s cloud division, which has been seeing solid double-digit growth. That trend should continue with the Street anticipating a sales range of 39% to 43%.
ORCL Stock Monthly Chart
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As the long-term ORCL stock chart suggests, momentum has not been synonymous with Oracle shares since bottoming in the aftermath of the Dot.bomb bubble.
The good news is ORCL has established a couple significant and healthy base-on-base corrective patterns over the last few years which should allow the uptrend to persist. However, I’d be remiss to not discuss the daily view.
For some pattern traders, ORCL stock does appear to be taking on a bearish head-and-shoulders topping pattern on the daily chart. The price action has formed largely as a result of the prior two earnings reports with their contrasting and quite volatile gaps in ORCL stock.
Net, net with one win for the bulls, a win for the bears, a market that’s equally adept at breaking classic chart patterns as adhering to them and ORCL stock’s much less threatening looking monthly chart; this strategist’s forecast is for higher prices.
ORCL Stock Long Butterfly Strategy
Reviewing ORCL’s options, I’m inclined to go with a short-term earnings play that will either pay off immediately or realize a loss based on the daily chart bearish top failing.
The play is buying the Weekly Dec 15 $51.50/$53/$54.50 call butterfly, which is designed to accommodate earnings volatility in conjunction with ORCL stock being able to counter last quarter’s bearish gap and put together a test of the prior high.
With shares of Oracle at $50.05 the spread is priced for 25 cents or the equivalent of 0.50% stock risk. By Friday afternoon if shares are below $51.50 or make a less-likely move above $54.50, the trader forfeits the debit.
From $51.75 to $54.25 some type of profit exists, though the closer to $53 a share the better with a max payoff of $1.25 at the shorted center strike.
Investment accounts under Christopher Tyler’s management do not currently own positions in Under Armour or its derivatives, but may be compelled to suit up shortly! The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. . For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits and feel free to click here to learn more about how to design better positions using options!
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