Current options prices are implying a move of around 11%. While this might sound like a lot, Oracle has had an average earnings move of 9.5% over the last three quarters. This 11% expected earnings move is elevated compared to recent realized moves, but only moderately.
This means that investors are paying more for upside exposure compared to downside protection. This is the reverse of the pattern we often see in equities markets, where that downside protection typically costs more. This is also a trend we've been observing in Oracle leading up to earnings over the last year, and one that has gotten much more pronounced within the last week.
We could be seeing this for a couple of reasons, for example:
1. Oracle has had some nice momentum leading into earnings. With the stock already up 15% in the last week, this could be investors trying to capture that.
2. Oracle has a recent history of explosive moves to the upside following earnings, and options traders may be worried about missing the potential upside.
3. With the stock coming off 52-week lows in July, it could be genuine optimism about the trajectory of the company.
This earnings cycle, Microsoft and Amazon were examples of the market responding positively to AI investments paying off. Amazon shares jumped over 15% following earnings after reporting strong revenue growth that backed up their AI investments. Microsoft jumped around 15.5% after showing its future bookings were growing sharply, easing concerns that its AI spending was outpacing demand. Investors may be feeling optimistic about Oracle's massive AI infrastructure investment paying off, too. But the bigger question for Oracle is whether it can keep funding that buildout without further financial strain.
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