Earnings season is winding down, but there are still several potential trading opportunities before the well runs dry.
For instance, Oracle Corporation (ORCL) will step into the earnings confessional after the close of trading tomorrow to release its fourth-quarter figures. Wall Street isn’t expecting anything spectacular, but ORCL stock is poised to break above a key technical hurdle at $40 if guidance goes well.
Diving straight into the numbers, Oracle is expected to post a profit of 62 cents per share, down from 68 cents per share in the same quarter last year. Revenue, meanwhile, is expected to slip 2.2% year-over-year to $9.13 billion. Historically, Oracle has had no trouble meeting the Street’s view, besting the earnings consensus in three of the past four reporting periods.
Sentiment toward ORCL stock is leaning toward the bulls’ camp within the brokerage community. For instance, EarningsWhisper.com reports that the Oracle’s fourth-quarter whisper number arrives a penny higher than the consensus at 63 cents per share. Furthermore, analysts have doled out 21 buy ratings on the shares, compared to 13 holds and five sells, according to Thomson/First Call data.
However, there is room for improvement, as the 12-month consensus price target rests at $44, a meager 13% premium to yesterday’s close. Price-target increases could be just the boost that ORCL stock needs to extend its recent run higher … if the company’s guidance remains firm.
Options traders are considerably more skeptical, however. Specifically, the March/April put/call open interest ratio for ORCL arrives at 1.02, with calls and puts in near parity. This ratio rises to 1.18 when we focus solely on the March series.
Click to Enlarge Overall, March option implieds are pricing in a potential post-earnings move of about 5% for ORCL stock. This places the upper bound at $40.94, while the lower bound lies at $37.06. The $37 region is an important long-term support level for ORCL, while the $40 region is key in terms of technical support/resistance.
2 Trades for ORCL Stock
Call Spread: ORCL stock is on a tear at the moment, with the shares besting their 200-day moving average on Friday. Momentum appears to be on ORCL’s side, and traders looking to take advantage of this upswing in the shares may want to consider an April $40/$41 bull call spread.
At last check, this spread was offered at 31 cents, or $31 per pair of contracts. Breakeven lies at $40.31, while a maximum profit of 69 cents, or $69 per pair of contracts, is possible if ORCL closes at or above $41 when April options expire.
Put Spread: On the other hand, ORCL is nearing oversold levels. What’s more, guidance hasn’t been this earnings season’s strong suit. Traders looking to follow the lead in the options pits may want to consider an April $37/$38 bear put spread.
At last check, this spread was offered at 30 cents, or $30 per pair of contracts. Breakeven lies at $37.70, while a maximum profit of 70 cents, or $70 per pair of contracts, is possible if ORCL closes at or below $37 when April options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.