UPDATED Mar 25th @ 11:40am: ORCL is up 3.5% this morning after handily beating estimates and raising guidance. Stock is under-performing the implied move and the avg move over the last 4 qtrs, but remember the stock just rallied about 12% off of the lows made last week. I think it is safe to say there is a good deal of enthusiasm already in the stock. That said I favored the stock replacement strategy and still do given its slightly muted reaction to good news and failing this morning after making a new intra-day 52 week high……
Update on suggested trade from March 18,2011-TRADE: Buy the APR 31/33 Call Spread for ~.70 (stock ref 30.90).…Spread can be sold now for about 1.50 (double your money)….I had on an APR call spread and took it off as the stock failed to get through that 34 level. To compare if you just stayed long the stock vs being long the call spread, you would be up 1.35 in the stock vs the profit now in the call spread of ~.75. But again, you would only have done this strategy if you were long and worried about downside volatility, but not willing to fully relinquish your bullish bet on the name…..So this spread offered a good risk reward when you take into account your worries about potential downside…..I think stock replacement strategies continue to make sense as I am bearish on the market near term and think we go back and test 1250 in the SPX. In that scenario I want to define my risk with longs that I want to hold onto through call spreads.
FROM mar 18, 2011:
ORCL ($30.90) reports earnings Mar 24th after the close and i have to think that this will be a closely watched report as investors will want to get a sense for IT demand since the disasters that were CSCO and HPQ last month.
-The implied move in the options market is ~4.5% vs the avg move over the last 4 qtrs of ~4%.
-stock down small on the year after having a an almost 30% surge in 2010…..given the volatility in the market in the last couple weeks the stock in my opinion is fairing pretty well.
-street remains fairly bullish with 35 buys, 10 holds and only 1 sell.
MY VIEW: without having too strong of an opinion on the near-term fundamentals i would say after doing a little work on the name that the Qtr is likely to be fine, but the guidance will likely be what drives the stock. As for guidance, and i don’t want readers to take this the wrong way, but i would expect many companies reporting near term to use the disaster in Japan as a sort of “mulligan” as it relates tot heir visibility.
-As referenced above, the guidance, or lack there of, by ORCL’s multi-national large cap tech peers HPQ & CSCO should cause holders of names such as ORCL to proceed with caution in this uncertain and volatile time…..
–Additionally, ORCL is a serial acquirer of companies and has had 1 large cap acquisition in 5 of the last 6 Q1s dating back to Jan 2005…..will there be another one soon???
SUNW-$7.4b Jan 2010,
BEAS-$8.5b Jan 2008,
HYSL- $3.3B Mar 2007
SEBL-$5.85b Jan 2006
PSFT -$10,3b- Jan 2005
If You Are Long Consider Stock replacement strategies: (Please create a Free 1 Month Trial account to read)
TRADE: Buy the APR 31 / 33 Call Spread for .70
-Buy 1 Apr 31 call for 1.00 and
-Sell 1 Apr 33 call at .30
Break-Even on Apr Exp:
Upside: btw 31.70 and 33 can make up to 1.30, and above 33 you make 1.30 or almost 2x your money….
Downside: stock btw 31 and 31.70 u lose up to .70, below 31 lose all .70 premium u paid……