ORCL May Be Bouncing Off A Dip; Sell Covered Calls And Puts or Wait For A Better Price?

Cautiously trade stocks, covered calls options and cash secured puts options with me for a year. Then you should have a nice total returns trading business.

By Donald E. L. Johnson

Cautious Speculator

• ORCL’s charts are starting to look bullish after about three months of consolidation.

• The stock will move with the market as most do. Manage your risks.

• No one knows where the markets will go. They never do.

• Covered calls and cash secured puts trades can generate premium income that will enhance ORCL’s 1.56% dividend.

• Compared with other big tech stocks, ORCL’s $82.11 price is low enough that most people can buy at least 100 shares for $8,211.00 and/or trade one call or puts option on it. Do small trades.

Oracle (ORCL) is bouncing off recent lows and still is about 19% below its target price and fair value estimated price of about $101, according to StockRover.com. That makes it a good bullish candidate for a covered calls or cash secured puts trade, or both.

This depends on each trader’s financial situation and goals.

Aggressive weekly traders might buy ORCL for about $82.11 and sell ORCL 2.11.22 expiration $83 strike (delta .39) covered calls for an annualized return on risk (RoR) of about 50%.

Cautious monthly traders could buy ORCL for about $82.11 and sell ORCL 2.25.22 expiration $85 strike (delta .29) calls for an annualized RoR of about 19%.

Speculators looking for a correction in the markets, which probably would take ORCL down some more with it, could sell ORCL 3.18.22 $70 strike (delta -.12) cash secured puts for about a 8.3% annualized RoR. This depends on where the stock is when a trade is made. Support is around $78 and resistance is at its 200-day moving average of $87.

Traders who are very bearish or uncertain are likely to wait for lower prices. But bottom fishing often doesn’t work. Ask me.

More experienced risk takers might buy the stock, sell the calls and at the same time sell the puts to get as much income as possible without taking a whole lot of risks. ORCL’s dividend yields 1.56% and the next ex-dividend date probably will be in the first week of April.

In its research report on ORCL, StockRover.com gives the company a 71 value score, 79 growth score, 87 quality score and very bullish sentiment score.

What makes Oracle a bit risky is that it is expensive in terms of its Price/Free Cash Flow, which is a forward looking valuation metric that can’t be manipulated by the company with financial engineering.

As you would expect from a big tech stock, Oracle’s P/FCF is 33.4. I prefer stocks with P/FCF ratios of 5 to 20. Stronger stocks with good to outstanding growth and profitability prospects command higher valuations. Again, on this one, investors could manage the risks by trading the lower deltas of .05 to .15 on calls and -.05 to -.15 on puts. Yes, that is less risky than the trades shown above.

As always, I diversify my stock and options portfolios to minimize my risks. I have a lot of one-option trades and a few on lower-priced stocks and ETFs with more shares and options.

The issue is, not how many shares do you trade. It is how much of your liquid assets do you put in each trade?

Click on the home page link below to see recent articles about JNJ XOM, UPS, T, MSFT. Consider those stocks for a portfolio while creating a trading plan for the week.

Question: Do you have a trading plan for the next week and month?

LINKs:

Home Page. See links to options and stock picking web sites and other resources.

@realDonJohnson. I’m active on twitter where I tweet and link to tweets about stocks that I like.

Calls vs Puts Options: What’s the Difference?

Beware

Like all investing, trading stocks and options is risky. If you can’t sleep with market risks, you might want to let someone else do your trading. Consider an option trading ETF like XYLD, which I own. I also trade its calls and puts. I’m an active private speculator who trades covered calls and sells puts on stocks for my accounts. I am not a professional analyst nor a financial advisor. I don't take and won't take responsibility for how other people trade. This article is for educational purposes only. It is not advice. The data presented looked accurate at publication time except for intra-day fluctuations, but I can’t guarantee the accuracy. Traders should do their due diligence. I reserve the right to trade any of the listed stocks and options at any time. I own or have options  on T.

@realDonJohnson. I’m active on twitter where I tweet and link to tweets about stocks that I like.