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Tuesday, March 07, 2023 7:04:37 PM
Oracle's Upcoming Earnings Are A Boon For Short Put Income Investors
By: Barchart | March 7, 2023
Oracle (ORCL) is coming out with its earnings on Thursday, March 9, for its fiscal Q3 ending Feb. 28. ORCL stock has been flat in the past month ending at $89.74 on March 6, but up 7.19% YTD. This has presented an opportunity for short-put income play investors, as I pointed out in my last article on Oracle on Feb. 14.
For example, Oracle's put option prices have been skewed higher than comparable out-of-the-money calls, as I wrote in the article. This indicates investors' ongoing trepidation about earnings, especially given the turmoil in the tech sector.
Moreover, this is still the case today, which continues to make short-put plays attractive to income investors.
Short Put Option Plays For Income
Last month we pointed out that the $80 strike price puts for March 17 were trading for 72 cents. The comparable 10% out-of-the-money strike price calls at $97.50 were at 52 cents. So the put option short trade was likely to yield more for the investor.
And so far that is the case. Today the $80 strike price puts are at $0.21 per put, whereas the $97.50 calls are at 31 cents.
So, that means that the put option fell from 72 cents to 21 cents, a 70% return for the short put investor. By contrast, the call option trade fell from 52 cents to 31 cents, just a 40% return. That shows that the higher premium put option, based on the distance from the spot price, was also the best return for short option investors.
Moreover, the existing situation for shorting out-of-the-money (OTM) put options going forward is also very favorable. For example, the April 6, 2023, expiration put option chain shows that the $82.00 strike price trades for 77 cents per put option. This strike price is 8.62% below today's stock price of $89.74, ahead of its earnings release.
ORCL Puts - Expiring April 6 - Barchart - As of March 6, 2023
That means that the investor who secures $8,200 with the brokerage firm in cash and/or margin, can enter an order to “Sell to Open” 1 put contract at $82.00. The account will immediately receive $77, so this represents a present yield of 0.93% (i.e., $77/$8,200 invested). That also projects out to an annualized return of 11.3%, assuming it can be repeated each month.
Moreover, the similar OTM call option is the $97.00 call strike, which is 8.0% higher than today's price. The premium that can be received is just 65 cents, lower than the 77 cents for the similar OTM put price.
Where This Leaves Investors In ORCL Stock Short Options
This indicates that investors are betting that ORCL stock will likely fall more than it will rise once the earnings come out on March 9. However, in the case of the put option short, the investor will not have to relinquish any shares should the stock rise more than 8.0%.
In fact, the investor has the opposite risk. If ORCL stock falls below $82.00 the investor will have to buy the shares at $82.00, no matter how low it gets. That could potentially lead to an unrealized loss situation. But, at least that is not a realized return as might be the case with the covered call.
Moreover, the investor can then take the long ORCL shares and short-covered calls. That can be repeated until the investor has made up for the unrealized loss. This is known as the “wheel” strategy.
As a result, all eyes will be on the March 9 earnings. If investors don't like what they see, which is not likely based on my prior analysis last month, the stock could falter. But right now this provides a good opportunity for short put income investors.
Read Full Story »»»
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By: Barchart | March 7, 2023
Oracle (ORCL) is coming out with its earnings on Thursday, March 9, for its fiscal Q3 ending Feb. 28. ORCL stock has been flat in the past month ending at $89.74 on March 6, but up 7.19% YTD. This has presented an opportunity for short-put income play investors, as I pointed out in my last article on Oracle on Feb. 14.
For example, Oracle's put option prices have been skewed higher than comparable out-of-the-money calls, as I wrote in the article. This indicates investors' ongoing trepidation about earnings, especially given the turmoil in the tech sector.
Moreover, this is still the case today, which continues to make short-put plays attractive to income investors.
Short Put Option Plays For Income
Last month we pointed out that the $80 strike price puts for March 17 were trading for 72 cents. The comparable 10% out-of-the-money strike price calls at $97.50 were at 52 cents. So the put option short trade was likely to yield more for the investor.
And so far that is the case. Today the $80 strike price puts are at $0.21 per put, whereas the $97.50 calls are at 31 cents.
So, that means that the put option fell from 72 cents to 21 cents, a 70% return for the short put investor. By contrast, the call option trade fell from 52 cents to 31 cents, just a 40% return. That shows that the higher premium put option, based on the distance from the spot price, was also the best return for short option investors.
Moreover, the existing situation for shorting out-of-the-money (OTM) put options going forward is also very favorable. For example, the April 6, 2023, expiration put option chain shows that the $82.00 strike price trades for 77 cents per put option. This strike price is 8.62% below today's stock price of $89.74, ahead of its earnings release.
ORCL Puts - Expiring April 6 - Barchart - As of March 6, 2023
That means that the investor who secures $8,200 with the brokerage firm in cash and/or margin, can enter an order to “Sell to Open” 1 put contract at $82.00. The account will immediately receive $77, so this represents a present yield of 0.93% (i.e., $77/$8,200 invested). That also projects out to an annualized return of 11.3%, assuming it can be repeated each month.
Moreover, the similar OTM call option is the $97.00 call strike, which is 8.0% higher than today's price. The premium that can be received is just 65 cents, lower than the 77 cents for the similar OTM put price.
Where This Leaves Investors In ORCL Stock Short Options
This indicates that investors are betting that ORCL stock will likely fall more than it will rise once the earnings come out on March 9. However, in the case of the put option short, the investor will not have to relinquish any shares should the stock rise more than 8.0%.
In fact, the investor has the opposite risk. If ORCL stock falls below $82.00 the investor will have to buy the shares at $82.00, no matter how low it gets. That could potentially lead to an unrealized loss situation. But, at least that is not a realized return as might be the case with the covered call.
Moreover, the investor can then take the long ORCL shares and short-covered calls. That can be repeated until the investor has made up for the unrealized loss. This is known as the “wheel” strategy.
As a result, all eyes will be on the March 9 earnings. If investors don't like what they see, which is not likely based on my prior analysis last month, the stock could falter. But right now this provides a good opportunity for short put income investors.
Read Full Story »»»
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