It doesn’t take a soothsayer to realize Oracle Corporation (NYSE:ORCL) is looking a good deal riskier for bulls these days off and on the price chart. And for would-be bearish traders wanting to cash in on those problems, a long put vertical spread on Oracle stock is a wise choice for positioning in lieu of shorting shares. Let me explain.
Following an underwhelming corporate confessional late last month, it is officially “strike two” against Oracle stock. Third-quarter results featured a second revenue miss in a row punctuated by another sales shortfall within its cloud business — and the company’s best, but quickly diminishing shot at growth.
Compounding the headaches for ORCL investors, guidance for its cloud venture was downwardly-revised below Street views. In total, the report has Wall Street questioning whether Oracle is already too late in entering a market dominated by the likes of Amazon.com, Inc (NASDAQ:AMZN), Microsoft Inc (NASDAQ:MSFT) and Salesforce.com, Inc. (NYSE:CRM).
But with other investors doing more than just questioning the company’s latest results and aggressively exiting Oracle stock in the aftermath of earnings, both off and on the price chart ORCL is shaping up for bearish traders.
Oracle Stock Weekly Chart
The last time I wrote about Oracle stock in late February, the forecast was for a rally. Following a messy, but real-world successful double bottom test of a lengthy corrective and first-stage base pattern breakout; the price action looked very promising.
Our outlook did prove prescient, for a short while at least. Shares of ORCL preceded to breakout to fresh intermediate highs, but a bearish post-earnings reaction price gap went on to break below the established and described technical pattern support.
Of late and over the last several sessions Oracle stock has consolidated below resistance. In conjunction with a weak-looking stochastics set-up, shares are in position to move lower toward $42.50 and test of the 200-week simple moving average as a first target.
Oracle Stock Bear Put Vertical Strategy
Given our view Oracle stock is at risk of a larger correction, one favored spread for positioning is the June $45 / $42 bear put vertical. Priced for 97 cents with shares at 45.75, this combination substantially reduces Greek risks and limits dollar exposure to a defined amount of just more than 2% of shorting shares of ORCL. That’s nice.
Personally, I’d look to further reduce risk. In our view, a technical stop loss above $47.60 and modestly above resistance makes enough sense without playing the position too tight or too loose.
Lastly, this vertical allows a decent amount of time for pressure in ORCL to occur and maybe move the spread fully in-the-money. However, taking profits along the way or adjusting into a very low or no cost butterfly if possible, is a good policy to consider.
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.