For today’s trade of the day e-letter we will be looking at a monthly chart for Oracle Corp. (ORCL), states Chuck Hughes of Hughes Optioneering.
Before breaking down ORCL’s monthly chart let’s first review what products and services the company offers. Oracle Corporation offers products and services that address enterprise information technology environments worldwide. Its Oracle cloud software as a service offering includes various cloud software applications, including Oracle Fusion cloud enterprise resource planning, Oracle Fusion cloud enterprise performance management, Oracle Fusion cloud supply chain, and manufacturing management, Oracle Fusion cloud human capital management, Oracle Advertising, and NetSuite applications suite, as well as Oracle Fusion Sales, Service, and Marketing.
Now, let’s begin to break down the monthly chart for ORCL stock. Below is a Ten-Month Simple Moving Average chart for Oracle Corp.
Buy ORCL Stock
As the chart shows, in October 2022, the ORCL One-Month Price crossed above the Ten-Month simple moving average (SMA). This crossover indicated the buying pressure for ORCL stock exceeded the selling pressure. For this kind of crossover to occur, a stock has to be in a strong bullish uptrend.
Now, as you can see, the One-Month Price is still above the Ten-Month SMA. That means the bullish trend is still in play! As long as the One-Month price remains above the Ten-Month SMA, the stock is more likely to keep trading at new highs and should be purchased. Our initial price target for ORCL is 104.50 per share.
98.6% Profit Potential for ORCL Option
Now, since ORCL’s One-Month Price is trading above the Ten-Month SMA this means the stock’s bullish rally will likely continue. Let’s use the Hughes Optioneering calculator to look at the potential returns for an ORCL call option purchase.
The Call Option Calculator will calculate the profit/loss potential for a call option trade based on the price change of the underlying stock/ETF at option expiration in this example from a flat ORCL price to a 12.5% increase.
The Optioneering Team uses the 1% Rule to select an option strike price with a higher percentage of winning trades. In the following ORCL option example, we used the 1% Rule to select the ORCL option strike price but out of fairness to our paid option service subscribers, we don’t list the strike price used in the profit/loss calculation.
Trade with Higher Accuracy
When you use the 1% Rule to select an ORCL in-the-money option strike price, ORCL stock only has to increase by 1% for the option to break even and start profiting! Remember, if you purchase an at-the-money or out-of-the-money call option and the underlying stock closes flat at option expiration it will result in a 100% loss for your options trade! In this example, if ORCL stock is flat at 93.97 at option expiration, it will only result in a 3.0% loss for the ORCL option compared to a 100% loss for an at-the-money or out-of-the-money call option.
Using the 1% Rule to select an option strike price can result in a higher percentage of winning trades compared to at-the-money or out-of-the-money call options. This higher accuracy can give you the discipline needed to become a successful option trader and can help avoid 100% losses when trading options.
The goal of this example is to demonstrate the powerful profit potential available from trading options compared to stocks. The prices and returns represented below were calculated based on the current stock and option pricing for ORCL on 4/11/2023 before commissions. When you purchase a call option, there is no limit on the profit potential of the call if the underlying stock continues to move up in price.
For this specific call option, the calculator analysis below reveals if ORCL stock increases 5.0% at option expiration to 98.67 (circled), the call option would make 47.8% before commission. If ORCL stock increases 10.0% at option expiration to 103.37 (circled), the call option would make 98.6% before the commission and outperform the stock return by nearly ten to one. The leverage provided by call options allows you to maximize potential returns on bullish stocks. The Hughes Optioneering Team is here to help you identify profit opportunities just like this one.
