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Tuesday, March 21, 2023 2:16:32 PM
Oracle (ORCL) Stock Looks Fit For Traders Shorting Puts For Income
By: Barchart | March 21, 2023
Oracle Corp (ORCL), the cloud software and services company, reported stellar earnings on March 9. Nevertheless, ORCL stock has been essentially flat in the last month, trading at $87.46 on March 21 (midday). This presents short-put traders a good income opportunity with out-of-the-money put options.
Oracle reported that for its fiscal Q3 ending Feb. 28 revenues were up 18% year-over-year in USD and rose 21% in constant currency to $12.4 billion. Moreover, the company is now extremely profitable with non-GAAP operating margins at 42%. In addition, Oracle generated $7.3 billion in free cash flow (FCF) during the last 12 months (LTM). That represents a healthy 15% of its LTM revenues.
In addition, Oracle pays a consistent dividend which it just hiked by 25% to $1.60, giving ORCL stock a 1.78% dividend yield. Moreover, the company is still buying back stock, albeit at much-reduced levels compared to last year.
On top of this at just 17x this year’s earnings forecasts, ORCL stock is still moderately priced. All of these factors and earnings quality traits add up to a stock that is too cheap.
Shorting Out-Of-The-Money Puts
One way to conservatively play this is to short out-of-the-money OTM puts, as I described in my recent article prior to the earnings. That way, in case the stock takes a hit, the investor has a chance to buy in at a lower level, in addition to receiving immediate income.
For example, now with ORCL stock at $87.47, the $82.00 puts which I wrote about in the last article have dropped from 77 cents from March 6 to just 45 cents today. That represents a good return for investors in the past 15 days, or +41.6% (i.e., ($0.77-$0.45)/$077 x100).
Investors might want to roll this over (i.e., buy to close the short put position) and short a new further out-of-the-money put trade. For example, the April 21 expiration $80 strike price puts trade for 62 cents. This is a similar OTM strike price, i.e., over 8.4% below today's spot price, as well as a similar premium as before.
ORCL Puts - Expiring April 21 - Barchart - As of March 21, 2023
For example, it also means that an investor who secures $8,000 in cash and/or margin with a brokerage firm can then enter an order to “Sell to Open” 1 put contract at $80.00. The account will then immediately receive $62 per put contract shorted. That works out to an immediate 0.775% yield (i.e., $62/$8,000). If repeated each month for a year, this works out to an annualized 9.3% return.
Moreover, it allows the investor to buy in $80.00 if the stock falls to this level on or before April 21. This is a better situation than an investor who sells a covered call and then sees the stock fall to $80.00. At least with this short put trade, the investor will not have an unrealized capital loss. Moreover, the investor will have a lower breakeven, at $79.38 (i.e., $80-$0.62), which is 8.9% below today's price. However, keep in mind that if the short put trade is exercised, the investor could end up owning the stock at a higher price than the spot price.
The bottom line here is the ORCL stock is cheap and using short puts to buy in at a lower price is a good discipline, along with the ability to make income.
Read Full Story »»»
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By: Barchart | March 21, 2023
Oracle Corp (ORCL), the cloud software and services company, reported stellar earnings on March 9. Nevertheless, ORCL stock has been essentially flat in the last month, trading at $87.46 on March 21 (midday). This presents short-put traders a good income opportunity with out-of-the-money put options.
Oracle reported that for its fiscal Q3 ending Feb. 28 revenues were up 18% year-over-year in USD and rose 21% in constant currency to $12.4 billion. Moreover, the company is now extremely profitable with non-GAAP operating margins at 42%. In addition, Oracle generated $7.3 billion in free cash flow (FCF) during the last 12 months (LTM). That represents a healthy 15% of its LTM revenues.
In addition, Oracle pays a consistent dividend which it just hiked by 25% to $1.60, giving ORCL stock a 1.78% dividend yield. Moreover, the company is still buying back stock, albeit at much-reduced levels compared to last year.
On top of this at just 17x this year’s earnings forecasts, ORCL stock is still moderately priced. All of these factors and earnings quality traits add up to a stock that is too cheap.
Shorting Out-Of-The-Money Puts
One way to conservatively play this is to short out-of-the-money OTM puts, as I described in my recent article prior to the earnings. That way, in case the stock takes a hit, the investor has a chance to buy in at a lower level, in addition to receiving immediate income.
For example, now with ORCL stock at $87.47, the $82.00 puts which I wrote about in the last article have dropped from 77 cents from March 6 to just 45 cents today. That represents a good return for investors in the past 15 days, or +41.6% (i.e., ($0.77-$0.45)/$077 x100).
Investors might want to roll this over (i.e., buy to close the short put position) and short a new further out-of-the-money put trade. For example, the April 21 expiration $80 strike price puts trade for 62 cents. This is a similar OTM strike price, i.e., over 8.4% below today's spot price, as well as a similar premium as before.
ORCL Puts - Expiring April 21 - Barchart - As of March 21, 2023
For example, it also means that an investor who secures $8,000 in cash and/or margin with a brokerage firm can then enter an order to “Sell to Open” 1 put contract at $80.00. The account will then immediately receive $62 per put contract shorted. That works out to an immediate 0.775% yield (i.e., $62/$8,000). If repeated each month for a year, this works out to an annualized 9.3% return.
Moreover, it allows the investor to buy in $80.00 if the stock falls to this level on or before April 21. This is a better situation than an investor who sells a covered call and then sees the stock fall to $80.00. At least with this short put trade, the investor will not have an unrealized capital loss. Moreover, the investor will have a lower breakeven, at $79.38 (i.e., $80-$0.62), which is 8.9% below today's price. However, keep in mind that if the short put trade is exercised, the investor could end up owning the stock at a higher price than the spot price.
The bottom line here is the ORCL stock is cheap and using short puts to buy in at a lower price is a good discipline, along with the ability to make income.
Read Full Story »»»
DiscoverGold
Information posted to this board is not meant to suggest any specific action, but to point out the technical signs that can help our readers make their own specific decisions. Caveat emptor!
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