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Reading the Oracle Tea Leaves

The technical picture is mixed, which I think lends to a smaller post-earnings move.
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Although we are well outside the heart of earnings season, that doesn't mean we still won't see some reports and some big names as well. The two biggest after the bell today are Oracle (ORCL) and Jabil Circuits (JBL).

I've been holding ORCL for a short time, but the stock failed to break out recently, hampered by a downgrade and price resistance. Earnings today should get ORCL out of current channel. ORCL disappointed in December, sending the stock below $25 for a very brief time. I don't expect a repeat this time around. Options are pricing in a move around 5.7%, although I am only looking for 4-5%, so a bit less than the current options setup. The technical picture is mixed, which I think lends to a smaller move. On the upside, my target is just above $31 while disappointment should bring us to $28.

Oracle (ORCL)

Source: StockCharts.com

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With these two levels in mind, my approach is to use the weekly options as a source of partial funding and go long April options. On the bullish side, the simple pay is long April $30 calls. But I would prefer to go long 1 April $29 call, 1 April $32 call and short 2 March $31 calls around $1.12. If ORCL skyrockets, then it is possible that this combination is only worth $1.00. But that would likely require a move well over $33. If ORCL stays flat, then this should hold its value fairly well, but it will look at losses should ORCL fall.

I would approach the bearish side a bit differently since I don't mind owning ORCL stock. Here I would buy 1x April $29 puts while selling 2x March $28 puts for a cost around $0.30. The delta on this ratio is near zero, so a flat or slight move down should be beneficial here. The risk is a large move higher or lower. To hedge the move lower, one could add some March 23 $27-26 put spreads for $0.09 against each naked put. Then the position wouldn't be naked until under $26 per share, which would be a very attractive area to pick up the stock.

At the time of publication, the author was long ORCL call and put combinations.