Oracle’s latest earnings and revenue fell short of what analysts expected. However, the stock rose after hours because of positive cloud growth projections and new contracts. In the first quarter of the fiscal year, Oracle clinched four multibillion-dollar deals, boosting its remaining performance obligations to $455 billion—a 359% increase from last year. Shares jumped 26% in after-hours trading, which could make it one of the biggest single-day gains for a U.S. company valued over $500 billion. Oracle expects to sign even more large contracts soon, anticipating its remaining performance obligations will exceed $500 billion. The company also raised its cloud infrastructure revenue forecast to $18 billion for the fiscal year, reflecting a 77% increase, and expects up to $144 billion over the next five years. For the second quarter, Oracle predicts a revenue growth of 12-14% in constant currency, which is above consensus estimates. Adjusted earnings per share are expected to be between $1.61 and $1.65. After the surge in after-hours trading, the implied volatility of Oracle options hit its highest level in over a year. This makes it appealing to sell options for premium in the coming weeks. The market anticipates significant future movements, creating an opportunity to sell puts or put spreads below the new expected stock price. The remarkable 359% increase in remaining performance obligations signals a major change in the company’s growth path, justifying the stock’s price increase. A similar situation occurred with Nvidia’s stock in May 2023 when a significant earnings boost created a higher trading floor that lasted for months. Betting against this momentum by buying puts is quite risky, as the market is clearly focused on the long-term potential of AI-driven cloud contracts. From current options data, the 30-day implied volatility has likely risen above 60%, placing it in the 100th percentile of its yearly range. This situation is perfect for strategies that benefit from time decay and lower volatility, often referred to as “volatility crush,” which usually follows big price changes. Additionally, we are seeing many analyst upgrades this morning, with average price targets moving toward the $250 level, further supporting the new valuation. Given all this, a strong strategy would be to sell out-of-the-money put credit spreads with expiration dates in October and November 2025. This approach allows us to collect the inflated premium while providing the stock with room to settle into its new price range. This well-defined risk strategy profits if Oracle’s stock stays above our selected strike price, leveraging both the positive sentiment and the eventual drop in volatility.

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