Among major technology enterprises, few names can compete with the blistering performance of cloud computing software giant Oracle (ORCL). Over the past five trading sessions, ORCL stock gained approximately 9%. Over the past month, it has increased by almost 20%, and, year-to-date, the security has returned stakeholders more than 47%. Whereas some may look to go short expecting a retracement, I remain Bullish while approaching the stock with Options in mind.
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Of course, much of the impressive rally can be tied to strong demand for the company’s artificial intelligence (AI) and cloud infrastructure services. Recently, management announced significant investments, including a $3 billion expansion in Europe, which is expected to bolster its position in the rapidly growing cloud and AI markets. With several multi-billion-dollar deals in the pipeline, analysts are optimistic about Oracle’s fundamental strengths and forward trajectory.
Still, with so much enthusiasm baked into the ORCL stock price, it’s reasonable to wonder if the party may come to an end — or at least the volume turned down a notch. Generally, Oracle is a steady mover. Therefore, the near-parabolic move since April this year may deter some investors from holding the position due to fear of potential losses.
Again, while it’s a reasonable concern, empirical data implies that ORCL stock may have a little something left in the tank. For those who want to take a limited-risk options wager, Oracle is a tempting idea.
Understanding Intentionality is Everything for ORCL Stock
Primarily, the financial publication industry is in the business of understanding intentionality. The sector speaks in terms of human emotions, of aggressive buyers and remorseful sellers. We’re all trying to decipher clues and patterns about what the market is thinking and more importantly, what it may do next.
However, while we analysts may be unified in our pursuit of understanding intentionality, we approach it in different ways. Arguably, most experts prefer fundamental analysis, the study of financial statements to identify undervalued assets. Others prefer technical analysis, the study of price charts to uncover favorably mispriced securities.
I prefer a different approach by using statistics. I’m not interested in analyzing continuous scalar signals such as share price or valuation metrics. Instead, I examine root demand, answering this core question: at the end of each trading session, are market participants net buyers or net sellers? By compressing the chaos of price discovery into market breadth or sequences of accumulative and distributive sessions, it’s much easier to identify recurring patterns.
Building an Aggressive but Rational Strategy for Oracle
To truly grasp ORCL stock, we must first understand its pricing dynamics so that we can better assess its behavioral state. This involves discretization, converting a scalar signal (ORCL’s share price) into distinct, discrete events (market breadth). Conducting this exercise across rolling 10-week intervals gives us the following demand profile:
In the past two months, ORCL stock has printed a 7-3-U sequence: seven up weeks, three down weeks, with a positive trajectory across the 10-week period. Ordinarily, the far greater balance of accumulative sessions relative to distributive sessions would scare investors away, as they fear holding the bag. To be honest, it’s an entirely rational fear.
Still, since January 2019, there have been 49 instances (again, on a rolling basis) of the 7-3-U sequence. More importantly, in 67.35% of cases, the following week’s price action results in upside, with a median return of 1.59%.
It’s also worth pointing out that, given the structure of the past 10 weeks, if the current week ends positively, ORCL stock would ink yet another 7-3-U sequence. Therefore, the implications of this signal may be relevant for an additional week.
What’s noteworthy is that on any given week, the chance that ORCL stock would rise comes out to 56.3%. This is the equivalent of the null hypothesis, in this case, the expected performance of ORCL assuming no mispricing. However, the alternative hypothesis is that the 7-3-U sequence does indeed signal a favorable mispricing.
Still, how reliable is this sequence? Running a one-tailed binomial test reveals a p-value of 0.08. Colloquially, this means that there is a 92% confidence level that the signal is intentional rather than a byproduct of random chance.
Those who believe in the viability of the above pattern may consider the 245/250 bull call spread expiring on August 8. This transaction involves buying the $245 call and simultaneously selling the $250 call, resulting in a $255 net debit (the maximum possible loss). Should ORCL stock rise through the short strike price of $250 at expiration, the maximum reward is $245, a payout of just over 96%.
Is Oracle a Buy, Sell, or Hold?
Turning to Wall Street, ORCL stock has a Moderate Buy consensus rating based on 23 Buys, 10 Holds, and zero Sell ratings over the past three months. The average ORCL price target is $237.86, implying ~2.3% of downside risk over the coming year.
Using Mathematics to Narrow Down the Options for ORCL Stock
What makes options trading so daunting for many is the sheer number of choices—dozens of strike prices, complex multi-leg strategies, and countless ways to get it wrong. It’s a delicate balance: too conservative, and you risk leaving profits on the table; too aggressive, and you could lose your capital entirely.
That’s where a methodical approach becomes invaluable. By applying discretization techniques, we can better understand the underlying intent behind the behavior of ORCL stock traders. From there, historical analogs allow us to empirically assess the probability of transitioning from one market behavior to another. This creates a more structured, data-driven framework for anticipating market moves—offering a more innovative, more disciplined way to trade options.