While earnings season is winding down, there are still several key reports slated to hit the Street over the next several session. For one, Oracle Corporation (ORCL) will step into the earnings confessional on Wednesday next week, and all eyes will be on the company’s continued transition into Cloud services.
Wall Street’s earnings expectations appear constrained, and the Oracle stock price has taken a hit recently, but shares are still vulnerable to additional downside risk.
Diving into earnings expectations, Oracle is expected to post a fiscal first-quarter profit of 52 cents per share, down 19% from year-ago levels. Furthermore, revenue is expected to slip nearly 1% year-over-year to $8.54 billion. Historically, Oracle has had trouble meeting the Street’s view — missing consensus estimates three times in the past four quarters.
Oracle Stock Options Data
Despite the lingering concerns, the brokerage community remains quite bullish on Oracle stock. Overall, analysts have doled out 21 “buy” ratings on the shares, compared to 14 “holds” and four “sells,” according to Thomson/First Call data. The 12-month consensus price target rests at $48, a 27% premium to yesterday’s close.
Outside the brokerage community, short sellers loaded up on ORCL short positions heading into next week’s report. In fact, the number of ORCL shares sold short jumped by 20% during the most recent reporting period. Currently, there are more than 27 million shares of Oracle stock sold short, though that total only accounts for less than 1% of the stock’s total float. While this total clearly falls short of short-squeeze territory, it is a sign that pessimism is creeping into ORCL’s sentiment backdrop.
If these new ORCL short sellers are worried, they aren’t buying many calls to cover their positions. Specifically, the September/October put/call open interest ratio for ORCL options arrives at 0.96, with calls and puts in near parity. This ratio rises to 0.98 when we focus solely on the September series.
Click to EnlargeOverall, September option implieds are pricing in a potential post earnings move of 5.95% for ORCL stock. This places the upper bound at $39.73, while the lower bound lies at $35.27.
You’ll notice that these high and low levels correspond with overhead resistance at $40 and long-term support at $35. In other words, options traders aren’t expecting ORCL stock to break out of this trading range for the time being.
2 Trades for ORCL Stock
Put Spread: Traders looking to jump on the bearish bandwagon in the options pits might want to consider a September $36/$37 bear put spread. At last check, this spread was offered at 26 cents, or $26 per pair of contracts. Breakeven lies at $36.74, while a maximum profit of 74 cents, or $74 per pair of contracts, is possible if ORCL closes at or below $36 when September options expire.
Call Spread: On the other hand, those traders wanting to side with the analyst community may want to take a look at a September $38/$39 bull call spread. At last check, this spread was offered at 38 cents, or $38 per pair of contracts. Breakeven lies at $38.38, while a maximum profit of 62 cents, or $62 per pair of contracts, is possible if ORCL closes at or above $39 when October options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
