A cautious way to make a bullish bet on one of the major stocks still left to report earnings

While most of the S & P 500 has reported first quarter earnings, three notable names — where the options trade quite actively — have yet to report. One of those is Oracle and I will show how one could trade it here. Oracle Corp (ORCL) , which is scheduled to report on June 11 after the close, is of significant importance as it could potentially influence trading strategies. Following this, Broadcom Inc. (AVGO) will report on June 12th after the close, and Adobe Inc. (ADBE) on June 13th after the close. I’ll be following up with notes on Broadcom, Adobe and also Gamestop over the next week ahead of their earnings. AI is the buzzword (buzz acronym?) in tech these days, and one would think that a database, relational server, and decision support company of the scale and scope of Oracle was poised to be at the forefront of the secular shift to the cloud and more recently the AI revolution. It didn’t turn out that way. The traction in cloud infrastructure sales for Oracle is a crucial factor as it mitigates share loss to Microsoft and Amazon. The company aims to be a legitimate hyperscale cloud provider, particularly for current customers of the firm’s legacy database products. Gaining in the cloud? Signs of improvement in this area showed up with their last earnings report on March 11th. The company reported 7% year-over-year quarterly revenue growth, but more importantly, cloud services revenues rose 11% in constant currency terms. This was an important proof point, as earlier hopes for traction in the prior three quarters were tepid at best. The stock was flat when they reported earnings in June of 2023, but it fell double digits when they reported in September and December last year. At 19.6 times forward earnings estimates, Oracle is cheap compared to technology megacaps like Microsoft, which trades 32 times forward earnings estimates and 31 times for Amazon. However, while Amazon is a commercial competitor with AWS vs. OCI, Amazon’s other, very different online businesses are still substantially larger, so it isn’t as relevant a comp. For the last month, call options have outpaced put options by more than 2 to 1 on average daily in Oracle. The highest open interest for any options expiring next week, capturing earnings, is in the June 14th 125 strike calls. At about $3.70 per contract, these aren’t particularly cheap relative to the long-term average one-day earnings-related move of just under 6%. ORCL will need to rise nearly 5% for those calls to break even. However, the elevated premium is understandable given that the most recent 3 of the past four quarterly earnings releases saw double-digit moves. So, options traders are generally bullish. Sell-side analysts are mostly bullish with 21 buys, 15 holds, and one sell (from Morningstar, which arguably shouldn’t be included with conventional sell-side research) with an average analyst price target of nearly $139, just over 13% higher than the current stock price. The trade I’m willing to play along, but I have two caveats. One, upside surprises aren’t exactly a pattern. I’d prefer to see a few beats to demonstrate that the company has turned a corner. The other issue I have are the technicals. Several technical indicators, including RSI, various moving average strategies, and MACD, among others, aren’t bullish here. ORCL YTD mountain Oracle, Year-to-date A more cautious approach to a bullish bet on Oracle could be to buy call options. For instance, the September $125 calls not only capture next week’s earnings, but are also likely to capture the subsequent earnings, estimated for the second week of September. One could offset a portion of this cost (and the volatility crush that generally follows an earnings report) by selling a June 14th weekly $130 call. For those willing to take on the risk of purchasing the shares about 6% lower than the current stock price, one could also sell a weekly $115 put, further offsetting the premium. The trade: Bought the September $125 call Sold the June 14 $130 call Sold June $115 put This strategy improves the probability of profit, but does include the risk of owning the shares if the price falls materially post earnings, and consequently will have a meaningfully higher margin requirement. The potential trade payoff is illustrated below. DISCLOSURES: (None) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.