ORCL Analysis

Oracle Corp. (ORCL)

Update 9/25/2017: ORCL gapped $2.14 to the downside after earnings were published, declining for four consecutive days before recovering a small amount of the loss. The expiration calendar dictated my exit on Monday for a loss.

Earnings came in about as expected, with a consensus forecast of 63 cents per share and reported earnings of 62 cents. Zacks analysis had forecast only a  -0.34% chance of a downside earnings surprise. The stock’s beta, at 1.05, ios equivalent to the S&P 500.

The first-day declined of $4.05 after earnings exited the expected move of $2.37 and the average post-earnings move over the past year of $4.33. In some, the price response was a true outlier.

Shares declined by 6.3% over 11 days, or a -209% annual rate. The options position produced a -37.9% loss for a -1,257% annual rate.

ORCL publishes earnings on Thursday after the closing bell.

I shall use options that trade for the last time 15 days hence, on Sept. 29.

Implied volatility stands at 29%, which is 2.8 times the VIX, a measure of the volatility of the S&P 500 index.

ORCL’s IV stands at the peak of both its annual range and its most recent broad movement.

The price used for analysis was $52.70.

Premium: $2.51 Expire OTM  
ORCL-iron fly Strike Odds Delta
Long 57.50 89.9% 11
Break-even 55.01 ~74.7% ~28
Short 52.50 49.8% 53
Short 52.50 50.3% 47
Break-even 50.01 ~75.1% ~23
Long 47.50 89.1% 9

The premium is 50% of the width of the position’s wings.

The risk/reward ratio is 1:1.

The zone of profit in the proposed trade covers a $2.50 move either way. The biggest immediate move after each of the past four earnings announcements was $9.46, and the average was $4.33. After eliminating the maximum and minimum post-earnings movements, the central tendency is $2.96.

Zacks Investment Research has given ORCL a -0.34% score for its earnings surprise predictor. Beta stands at 1.05, almost identical with the S&P 500.

The expected move covering 85% of occurrences is $2.37, within the $2.50 break-even width.

The bid/ask spread is 8.2%.

Decision for My Account

Two outliers pushed the average for post-earnings price movements beyond the profit zone for this trade. However, the central tendency, with the outliers disgarded, lies within the zone, as does the expected move. Therefore, I have entered an order on ORCL as described above. The stock at the time of entry was priced at $52.68.

By Tim Bovee, Portland, Oregon, Sept. 14, 2017


Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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