ORCL: a Typical Earnings Gap Play

The "earnings gap play" is not my typical trade, but one of the setups I want trade more. The idea is to look at companies who disappointed with earnings and gapped down significantly. I buy when the stock reverses immediately after the report and tries to close the gap. I like this trade because I get the opportunity to buy the stock at a discount. Many investors got trapped on the wrong side and sold into earnings. They start to figure that they have been wrong so they start buying back the shares. Others might simply buy to do some dollar cost averaging on their long positions.

ORCL is a good recent example of this setup. I'm still long in the Covestor model portfolio, but the stock reached my target and closed the gap. I'll probably taks some (partial) profits today:

Disclosure: Covestor model is long ORCL