Option Trade of the Day: Oracle (ORCL)
For the third straight day we saw downward pressure on the equity markets. The indices were vacillating between positive and negative territory as new Fed Chairman Powell spoke in front of members of Congress for the second straight day.[hana-code-insert name=’adsense-article’ /]The bears got control after the White House announced its intentions of placing tariffs on imported aluminum and steel as early as next week.
After that announcement, the market turned sharply lower, but did manage to close off of its lows of the day.
For the second straight night we saw a large discrepancy between the bullish signals and bearish signals.
Last night we saw 51 bearish signals and only one bullish signal.
As a result of those options, I have another bearish trade idea for you. Oracle (NYSE: ORCL) was one of the 51 stocks and ETFs on the bearish list and after looking at the chart, I thought it looked like a good signal. Plus the fundamentals haven’t been that great with EPS growth at -1% over the last three years while sales have been flat over the same time period.
We see that ORCL has been moving sideways for the better part of the last nine months, caught in a range between $46 and $52.50. The company will release earnings on March 13, so you will want to be aware of that. The last couple of drawdowns have taken the stock down just below the $46 level and I am looking for another trip to that area on this bearish crossover in the daily stochastics.
Buy to open the April18 50 strike puts on ORCL at $2.20 or better. These options expire on April 20. With the company announcing earnings in less than two weeks, you may want to take profits off the table before that release if they are available. If the stock drops over the next week and the options are at a profit of 60% or more, I would suggest selling half and then waiting to see what happens with the earnings announcement. We see that the stock gapped higher on earnings back in June and gapped lower on earnings in September and December, so there is a history of big moves after the earnings announcement. If you can take a gain of 60% or more on the first half, your downside is limited to 20% for the trade as a whole, while the upside is still unlimited.
— Rick Pendergraft
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