What Oracle's Breakout Can Tell Us About Big Tech Moves

Subscribers to Chart of the Week received this commentary on Sunday, September 14.

Earlier this week, Oracle Corp (NYSE:ORCL) surged 36% -- its best daily percentage jump since Dec. 23, 1992 -- the company’s $922.22 billion market cap inching closer to the trillion-dollar club. The Austin-based tech conglomerate has taken the AI industry by storm, Tuesday night unveiling four new multi-billion-dollar contracts that overshadowed a fiscal first-quarter earnings and revenue miss. The icing on the cake was a shiny new $300 billion contract with OpenAI, slated to span around five years. The entire day was so profitable for Oracle that co-founder Larry Ellison (albeit briefly) slid past Elon Musk as the world’s richest person.

Wednesday’s surge culminated in a record high of $345.72, more than 23 times its March 1986 initial public offering (IPO) price of $15. The shares have since ceded $300 in a profit-taking correction, but still maintain a 78% year-to-date gain.

With the stock adding over $200 billion in market cap in a single session, Schaeffer’s Senior Quantitative Analyst Rocky White unearthed a study that looked back at times a stock moved up at least 10% in a day and added at least $100 billion in market capitalization.

The data shows an extremely bullish long-term return, while short-term data suggests a possible weakness in the ensuing first few weeks (as we’ve already seen with Thursday and Friday’s pullback.) In the first week after the big move, the stock averaged a drop of 3.5%, with only 26% positive and 33% beating the S&P 500 Index (SPX). These pops resulted in short-term pullbacks that were more severe than the SPX’s corresponding returns. Over the next month, however, the stock averaged a gain of 4.7%, with 70% positive and 44% beating the SPX. Every other timeframe shows these single-day melt ups outflank corresponding SPX returns. This data suggests purchasing a weekly put option and then once it expires, buying a three-week call. White also looked at when large cap stocks made huge gains and there were 27 occurrences. The most recent was from Meta Platforms (META) on July 31, which since, has seen a downturn.

White drilled down even further, calculating returns by measuring hypothetical at-the-money options (ATM). One-week puts average a return of 60%, with 50% finishing positive and 31% doubling. One-month calls average a 32% return with 35% positive and 19% doubling, though this is after a poor first week so, it could be assumed if you wait a week to buy your return will be even higher.

Over the past 10 days, ORCL has seen 2.15 million calls and 2.03 million puts cross the tape. This is quadruple the average rate of this two-week time frame, with special attention given to the -- you guessed it -- weekly 9/12 300- and 310-strike puts. Nearly 150,000 contracts were purchased on the former, 27,000 (or 6,639 trades) of which were purchased for a Volume Weighted Average Price (VWAP) of $3.36. In other words, this trader was betting on the $300 level to be a psychologically significant round-number magnet by the closing bell Friday, when the weekly trade was set to expire.

Between Aug. 28 and Sept. 11, 106,000 ATM calls and 73,000 ATM puts had been purchased. By midday Friday, call and put open interest (OI) stood in the highest percentile of their annual ranges. It's also worth noting that the stock has tended to outperform these volatility expectations, per its extremely elevated Schaeffer's Volatility Scorecard (SVS) of 97 out of 100.

In closing, short-term consolidation and long-term outperformance seems to be the destiny for any mega cap fresh off a more than $100-billion market-cap surge. And in Oracle’s case this past week, options traders are once more ahead of the curve. These billion-dollar stock advances don’t happen on Wall Street every day, so the next time you see such a headline, remember that options can allow you to profit from both near-term consolidation and long-term growth.