ORCL – How to Trade Potential Weakness in Oracle Earnings

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Tech earnings continue to roll out this week, with Oracle Corp. (ORCL) stepping up to release its first-quarter earnings report after the close of trading Thursday night.

The pressure is on for Oracle, as the fellow software maker Adobe (ADBE) reported slightly disappointing results and guided below expectations.

Overall, the brokerage community has high hopes for Oracle earnings. The consensus currently is expecting Oracle earnings of 64 cents per share on revenue of $8.78 billion. But according to EarningsWhisper.com, the whisper number for the first quarter arrives at 66 cents per share, 2 cents better than the consensus.

Elsewhere, according to Thomson/First Call, analysts are quite taken with ORCL stock. In fact, the shares have garnered 21 “buy” ratings, compared to 13 “holds” and just three “sell” ratings. Additionally, the consensus 12-month price target for ORCL stock rests at $46, representing a premium of roughly 12% to yesterday’s close.

Options activity, on the other hand, is not as optimistic for ORCL stock.

Call open interest for the front three months of options arrives at 159,960 contracts, compared to put open interest 147,323 contracts. The result is a middling put/call ratio of 0.92, pointing toward uncertainty from these speculative investors.

Drilling down on this activity shows heavy call open interest resides at the overhead weekly Sep 20 $42 strike totaling 20,011 contracts, with another 18,972 contracts at the in-the-money Sep 20 $40 strike. Meanwhile, peak put open interest totals 11,277 contracts at the out-of-the-money Sep 20 $39 strike.

Oracle stock ORCL
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Turning to Oracle’s technical outlook, ORCL stock enjoyed a solid uptrend for the first half of this year, before rallying into resistance at the $43 level in June. Since then, ORCL stock has bounced around between support in the $39.50-$40 region and resistance at $42. The stock is currently fresh off a rebound from the $40 region, but remains capped by its 20-day moving average.

Weakness in the business software market, as indicated by Adobe, is certainly a concern heading into Oracle’s quarterly report. Meanwhile, weekly September options are pricing in a modest post-earnings move of only about 3.5%. This places the upper bound near $42.45, while the lower bound lies at $39.55.

Options Trade on ORCL Stock

Given this data, traders looking to position themselves ahead of Oracle’s earnings report might want to consider an Oct $39/$41 bear put spread.

At the close of trading on Wednesday, this spread was offered at 58 cents, or $58 per pair of contracts. Breakeven lies at $40.42, while a maximum profit of $1.42, or $142 per pair of contracts, is possible if ORCL closes at or below $39 when October options expire.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2014/09/oracle-stock-earnings-orcl/.

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