This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Oracle's Going Down: How to Trade Earnings

Feel free to review more earnings releases, and you will notice the pattern of strength followed by weakness through 2012. Again, we don't predict the future, we predict the odds. With that in mind, if Oracle beats the estimates, as I expect they will, we should see the stock gap higher, followed by weakness in the days proceeding, as I mentioned earlier.

To take advantage of the relatively high option premium in front of earnings with a bullish bias, we can sell a bull credit spread. A bull credit spread uses two put options, with the higher strike price sold, and the lower strike price bought as a hedge.

We are able to control our risk to the amount between the two strike prices, while at the same time put the odds in our favor as a result of premium decay.

A bullish credit spread I like is the March 22 weekly expiration $36 & $34 strike prices. This includes selling the $36 strike put for about 57 cents and hedging with a $34 strike for about 13 cents. The net result is a credit of 44 cents per contract. The downside risk is $1.56 ($2 difference between strikes, less the premium received).

If you want to learn more about options and the math used to calculate what your ideal strategy should include, pick up a copy of "Options Math for Traders by Scott Nations," published by Wiley Trading. It's a must read for anyone who is serious about learning the fine details of selecting the correct options strategy based on your objectives.

After the earnings release, look to close out the position not long before noon. As an active options trader, it's my experience that the best time to sell options is near the open and close of trading, and on average, the best time to buy is during the lulls of midday.

Taking Oracle one step further for investors, you may want to consider buying protective puts outright after the earnings release with an expectation of selling two or three days later. Once the dust settles, and if nothing changes, expect Oracle's stock to continue the upward path throughout 2013.

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
3 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $95.03 -2.90%
HPQ $12.57 -1.49%
IBM $147.07 -2.30%
MSFT $49.90 -2.04%
ORCL $40.33 -1.27%


Chart of I:DJI
DOW 17,830.76 -210.79 -1.17%
S&P 500 2,075.81 -19.34 -0.92%
NASDAQ 4,805.2910 -57.85 -1.19%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs