Friday, December 18, 2009

The Oracle Calendar Part Deux

With ORCL's earnings announcement now in the rear view mirror and options expiration looming on the immediate horizon, let's take a look at how the ORCL calendar spread mentioned on Monday has played out over the week.

Trade Inception:
Buy (1) Jan 24 call for $.30
Sell (1) Dec 24 call for $.15
Net Debit = $.15
ORCL Closing price last Friday = $22.78

Remember the ideal scenario for a calendar spread is to have the underlying residing at the short option's strike price at expiration. Fortunately ORCL had a positive reaction to last night's earnings announcement and gapped up to $24 this morning - Bullseye!

Long (1) Jan 24 call @ $.80
Short (1) Dec 24 call @ $.30

[Source: EduTrader]

The trade could be closed now at $.50 or a 233% gain. If ORCL closes above $24 today, the short Dec 24 call would be assigned. Consequently, I would recommend closing the trade prior to the close to avoid assignment and lock in the gain. Those that are new to calendar spreads may be wondering, "hmmm.... calendar spreads can make 100+% returns in a week - Why not do them all the time?" Good point, why not? In my opinion there's one primary reason: Horizontal calendars have a relatively small profit zone, which means that you've got to very good at predicting where the stock is going to be around expiration. A feat easier said than done. This Oracle calendar had virtually everything go right, so before you jump feet first into a ton of other calendars, recognize ORCL was a home run you're not going to hit every time.


Rene said...

Thanks Tyler...your posts are some of the best in my opinion.

Tyler Craig said...

My pleasure Rene. Thanks for the kind words-

Justin said...

Ditto on the posts Tyler-the information you provide here is a gold mine! Thank you for taking the time, it's great to hear your thoughts and see the trade play out.

Tyler Craig said...

Thanks Justin.

tim said...

May I add a third voice of appreciation for your teaching and willingness to answer questions.

Could you comment on this issue sometime, if you have any insights on the matter?

The ultra ETF's double and triple movers. I enjoyed day trading and doing short strangles and iron condors on some, especially FAS. Amazing premium for margin required, until recent new rules.

Are they still a good trade instrument? How they settle each day and that effect on their movement seems a hot topic.

Can certain option plays take advantage of how they operate?

Tyler Craig said...


To tell you the truth, I've never played options on the ultra ETF's before. So as to whether or not they're still a good trade instrument for options, I don't really have any insight. If I wanted to really get into it though, I'd check out any previous posts on VIXandMORE or Daily Options Report as both Bill and Adam have highlighted various nuances of the ultras over the past year. In addition, Adam Warner's new book- Options Volatility Trading- has a chapter devoted to some of the quirks and trade ideas for them.

I would have loved to have given you some interesting food for thought, but truth is I'm ignorant in that space-


Great chart