Oracle Corporation (NYSE:ORCL) isn’t perfect, but that’s more than okay in this strategist’s estimation — especially for investors turning to the options market in lieu of buying Oracle stock. Let me explain.
Earnings from ORCL stock a couple months back were far from the type that delights the Street. A profit and revenue beat took a backseat to slightly weaker guidance, as well as a modest sales miss in Oracle’s critical public cloud infrastructure and platform business, which disappointed in delivering just 21% year-over-year growth.
With Oracle’s next report still more than three weeks out, some might suggest clarity is needed before moving back into shares of Oracle Corporation. Personally, I don’t altogether disagree.
But with favorable, less-than-perfect price action already emphasizing other investors willing to forgive and forget — positioning in Oracle stock with a reduced and limited risk moderately bullish butterfly strategy looks even more agreeable.
Oracle Stock Weekly Chart
Life is messy and far from perfect. So it should come as no surprise price charts typically aren’t going to be as clean as the textbooks make them out to be. And in general, it would also be a mistake to pass up on these opportunities. It’s our observation ORCL stock is a textbook illustration of just this sort of important price behavior.
Over the past several weeks’ shares of Oracle have put together a confirmed and successful double bottom test of a key high dating back to December 2014, which immediately preceded a lengthy correction. A closer observation of the technical testing shows success allows for a couple percent of wiggle room through the former high of $46.71.
Bottom line, it’s our view in this era of inter-connectivity and algorithmic trading, now more than ever, flexibility and being able to interpret price patterns that produce what I’ll call ‘in the spirit of’ opportunities are equally, if not more important to appreciate as the real deal.
ORCL Stock Moderately Bullish Butterfly Strategy
Reviewing Oracle Corporation’s options, premiums are such that a bullish credit-based strategy isn’t very attractive in our view. And neither is an outright call purchase or bull call spread for that matter. What does hold my interest is positioning short-term through earnings next month with a moderately bullish, long call butterfly.
The real cost with this sort of strategy isn’t the price of entry. It’s a trader’s willingness to accept a limited profit range with the possibility of a small loss if ORCL stock overshoots the spread on the upside. In factoring in Oracle’s knack for putting together contained, but decent size post-earnings reactions, the 23 March $52/$54/$56 call butterfly is favored.
With ORCL at $50.50 this combination is priced for 31 cents or the equivalent of about 0.60% stock risk. At the same time, the modest cost of entry allows a trader to position for profits in-between $51.31 to $55.69. And if ORCL stock rallies by 6.9% to land at $54 per share on expiration, a max payout of $1.69 or return of nearly 550% is possible.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. 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.