Oracle Stock Probes All-Time Highs With Software Giant In New Growth Phase – Charm

The timing of Oracle‘s (ORCL) upcoming fiscal Q2 earnings report couldn’t be better. Breadth has broadened out as the major stock indexes trade near all-time highs, while several software stocks, including Oracle stock, have maintained their market leadership.

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Using Options To Find Stocks In Any Market Condition

Software stocks rallied en masse Wednesday, helped by a strong earnings report from enterprise software giant Salesforce (CRM). Oracle stock is getting support at its 10-week moving average for the second time ahead of Monday’s earnings report. Results are due after the close. With Oracle stock in a bullish technical setup, it could make sense for a call-option trade.

MongoDB (MDB), tracked in the database software group along with Oracle, has rallied nicely off lows. But the stock is still more than 30% off its high with a weak Relative Strength Rating of 62. MongoDB also reports Monday after the bell. After several quarters in a row of decelerating revenue growth, revenue for the October-ended quarter is expected to accelerate slightly from the July-ended quarter, up 15% to $497 million.

Oracle Stock Rallies

Oracle stock turned a lot of heads when shares gapped up on Sept. 10. A strong earnings report was the catalyst. Results were better than expected, but guidance for the current quarter was mostly in line with expectations.

Oracle’s cloud services and license support segment did revenue of $10.52 billion, up 10% year over year and just ahead of estimates. Investors seemed to focus more on cloud infrastructure revenue, which jumped 45% to $2.2 billion. At the time, Oracle’s cofounder, chairman and chief technology officer Larry Ellison said the company could end up operating 2,000 data centers over time, up sharply from around 160 in September.

A key highlight of the earnings release was news that Oracle would bring its database services to Amazon Web Services, Amazon’s cloud unit.

Oracle stock has rallied sharply in anticipation of another strong quarter. Adjusted profit is seen rising 11% to $1.48 a share, with revenue up 9% to $14.1 billion. The results would mark the second straight quarter of accelerating top-line growth.

Watching Adobe, Broadcom

Adobe (ADBE) broke out of a downtrend Wednesday on a strong day overall for software stocks. But it’s been a laggard performer in the technology sector after an earnings sell-off on Sept. 13. Adobe’s results topped expectations, but revenue guidance was soft.

The software giant’s Digital Media segment, which includes Creative Cloud subscriptions to Photoshop, Illustrator and other services, delivered revenue of $4 billion, up 11% year over year. Digital Media made up nearly 74% of total revenue.

Results from Adobe are will be out Wednesday after the close. Profit growth is expected to slow again, up 9% to $4.67 a share. Revenue growth, which has ranged from 10% to 12% over the past eight quarters, is seen rising 10% to just over $5.5 billion.

See Which Stocks Are In The Leaderboard Portfolio

Meanwhile, semiconductor stocks have been a mixed bag recently. While Nvidia (NVDA) and chip foundry Taiwan Semiconductor (TSM) are near highs could try to break out soon, chip designer Broadcom (AVGO) has been struggling to get above its 50-day line.

The lackluster price action comes despite three straight quarters of accelerating revenue growth. When Broadcom reported earnings on Sept. 5, shares gapped down even though revenue surged 47% to just over $13 billion. At the time, CEO Hock Tan said the company expects to deliver $12 billion in revenue from AI-related gear and custom chips, up from a prior forecast of $11 billion.

Quarterly results will be released Thursday after the close. Revenue growth is expected to accelerate again, up 51% to $14.1 billion.

Retail Reports

Leaderboard stock Costco (COST) is also on the earnings calendar, along with discount retailer Ollie’s Bargain Outlet (OLLI).

Costco joined the Leaders list on Nov. 8 when it broke out from a flat base. It’s performed well since then as the stock holds near all-time highs. Costco has few, if any, blemishes from a fundamental perspective. Shares dipped less than 2% in Sept. 27 after Costco reported a 6% rise in quarterly profit. Revenue edged up 1% to $79.7 billion.

It was the slowest year-over-year revenue growth in several quarters, but growth is expected to pick up when the company reports Thursday after the bell. Revenue is expected to jump 15% to $66.5 billion.

Similar to Costco, Ollie’s Bargain Outlet has also been a top performer, helped by several quarters in a row of strong bottom-line and top-line growth.

Ollie’s is near the top of a 21-week consolidation, sitting just below a 102.83 handle entry. Results are due early Tuesday.

Options Trading Strategy

A basic options trading strategy around earnings — using call options — allows you to buy a stock at a predetermined price without taking a lot of risk. Here’s how the option trading strategy works, and what a call-option trade recently looked like for Oracle stock.

First, identify top-rated stocks with a bullish chart. Some might be setting up in sound early-stage bases. Further, others already might have broken out and are getting support at their 10-week moving lines for the first time. And a few might be trading tightly near highs and are refusing to give up much ground. Avoid extended stocks that are too far past proper entry points.

Time The Market With IBD’s ETF Market Strategy

A call option is a bullish bet on a stock. Put options are bearish bets. One call option contract gives the holder the right to buy 100 shares of a stock at a specified level, known as the strike price.

Once you’ve identified a bullish setup in the earnings calendar, check strike prices with your online trading platform, or at Cboe.com. Also, make sure the option is liquid with a relatively tight spread between the bid and ask.

Look for a strike price just above the underlying stock price — that’s out of the money — and check the premium. Ideally, the premium should not exceed 4% of the underlying stock price at the time. In some cases, an in-the-money strike price is OK as long as the premium isn’t too expensive.

Choose an expiration date that fits your risk objective. But keep in mind that time is money in the options market. Near-term expiration dates will have cheaper premiums than those further out. Buying time in the options market comes at a higher cost.

Oracle Option Trade

When Oracle traded at around 186.50, a slightly out-of-the-money weekly call option with a 187.50 strike price and a Dec. 13 expiration came with a premium of around $7.50 per contract. That was 4% of the underlying stock price at the time and right in line with the 4% threshold of IBD’s strategy.

One contract gave the holder the right to buy 100 shares of Oracle at 187.50 per share. The most that could be lost was $750 — the amount paid for the 100-share contract. To break even, Oracle stock would need to rise to 195, factoring in the premium paid.

The expected move in the options market for Oracle, based on the at-the-money strike price of 185, was about 15-16 points up or down. This was determined by adding the at-the-money call premium to the put premium for the Dec. 13 contract, the expiration nearest the earnings report.