Larry Ellison and The Global Enterprise Software Giant: Oracle Corporation!! What is the Options Play Honey? By: Tim Bolger
Oracle (Orcl) is one of the most powerful software companies on the planet and we all know the man behind the helm who has been most influential in taking this business software powerhouse to where it is today…Yes, that remarkable man is billionaire Larry Ellison (Co-Founder and Ceo of Oracle) and a business legend (In 2011, Forbes ranked Ellison as the 5th richest man in the world) that I admire for his brilliance, innovation, and competitive nature. Ellison has built one of the most successful Technology companies in the world and he has a continual hunger to get larger, more powerful, and more profitable all the time. Oracle’s Ellison has spent over $40 billion in the last decade acquiring and gobbling up both competitors and smaller companies to add to the stellar suite of Oracle companies and software products. Currently, Ellison is attempting a hostile takeover of Peoplesoft and is always mining for additional acquisition targets that he sees fit for Oracle’s continued growth and gaining a competitive advantage in the marketplace.
Ellison is not only extremely competitive in the business world, but in “all other walks of life,” such as his love for racing sail boats. Ellison and his team were the recent winners of the America’s cup and brought the cup back to his hometown yahting club in lovely San Francisco. Competitive sailing, just like running one of most successful technology companies in the world, is a way of life for this Tech mogul. Ellison is determined to win the next America’s Cup being raced in San Francisco…To attempt achieving this goal, he built a custom $100 Million sailboat. Yes, he built a pretty nice boat by all standards. And, he likes to win and win alot…winning makes him and other powerful players alike feel good and he loves the adrenaline rush. After all, when you have over $30 Billion, you can buy whatever you want on earth(he owns fighter planes, helicopters, the second largest yacht in the world(The Rising Sun and is 452 ft 8 inches), sports cars, several gorgeous estates/mansions around the world, a beautiful place on San Francisco’s Billionaire’s row, etc.) and it is more the game of continual winning than needing any more cash…But, who can blame the guy if he wants to surpass Mexico billonaire Carlos Slim‘s wealth someday and be worth $80 billion someday. I definitely know that if he more than doubles his current wealth in his lifetime, that will be very good for both long term Oracle shareholders and Ellison’s personal Oracle fortune (Ellison is by far the largest Oracle shareholder, with a majority of his wealth held in the company’s shares). As of Jan 5, 2011 Ellison owned over 1.1 billion Oracle Shares. Wow!! It is always important to know how large the stakes of insiders are and the institutions that own the shares of the companies that we might invest in. I especially like to see when a founder, such as Ellison has a majority of his wealth on the shares. It is usually a bullish signal for longer term investors and means that Ellison feels the best investment is investing in himself(the quarterback) and the future of his company Oracle…
Say Hello to Larry Ellison’s Private Mega Yacht the “Rising Sun”:
One of Ellison’s favorite quotes was by Genghis Khan: “It is not sufficient that I suceed – all others must fail.” That is clearly a quote that Ellison has lived his life by and this business mogul continues to divide and conquer to achieve his personal goals and business goals for Oracle shareholders. Personally, I have been monitoring Oracle’s stock for over 3 years and think there is definitely great upside potential in the stock and equity options for Oracle investors.
The opportunity for our Options play just got even better for us in Dec 2o11. Oracle’s stock plunged 10% on high volume(over 180 million shares traded hands) after missing Wall St. analysts top line revenue forecasts in its latest quarterly earnings report in Dec 2011. I believe the revenue miss and share pullback was just a temporary bump in the road for Oracle shareholders and presents longer term investors with a great opportunity to add to their core position in the shares. So let’s look at the Options alternatives here:
Options Trade#1: I like selling the Orcl Mar 16 2012 25 Put Options for .75 cents. Keep in mind that the ask right now on these contracts is .51(the ask is what a seller is willing to sell them for currently) and a bid of .49, so we need the stock to decline 4-5% in order to get the Put options to a level at which I am looking to sell them to collect the options premium. As I will continue to educate on Optionshoney.com, selling or buying Options at the current Market price is often not a good idea and we need to be patient for the best time to make our trade. If the Put Options increase to .75 cents and I were to hypothetically sell 20 contracts, I would receive a credit of $1,500 to my brokerage account. I love Oracle shares for the long term and I am comfortable getting long the stock at 25, if I get exercised on the shares. I will get exercised only if Oracle shares are trading below $25 at Mar 16, 2012 expiration. If I wanted to place this trade, I would first need $50,000 in cash in my account as collateral in case I get exercised($25 share price x100 shares per options contract=$2,500, so if I get exercised on 20 contracts, that equals 20 x $2,500=$50,000). I like this trade, because I think the recent big sell off in Oracle shares was overdone to the downside as a result of a weaker Dec 2011 quarterly report than Analysts had forecasted. I believe Orcl shares will trend higher or sideways over the next few months and anticipate a stock price close higher than $25 by the March expiration of the contracts. If I get exercised on the shares, selling the 20 Put contracts will reduce my gross purchase cost of 2,000 Orcl shares at $25 per share from $50,000 to $48,500($50,000-$1,500 premium collected for selling the 25 strike Put Options). If Orcl shares trade to 40 in the next 18 months and I get exercised on the Orcl puts I might sell, this trade hypothetically costing me $48,500 will be worth $80,000 at 40 a share. I would be very happy with those potential returns and believe Oracle is well positioned in the global Technology arena to continue its growth and profitability. Of course, Options are very risky and I do not have a crystal ball as to the future of the markets or any outcome of my hypothetical Options trades, so please make sure to consult your financial advisor before buying/selling any options or making any stock investments. The Optionshoney.com disclaimer.
Options Trade#2: If I were to make a more bullish longer term bet on Oracle shares, I would think about purchasing the Orcl Jan 18, 2013 30 Call Options for $1.65 on a pullback in the current levels of Oracle stock. Oracle closed Friday at $27.34 and the ask on these Jan 13 contracts was $2.44. Remember timing and patience is key to setting up the perfect options trade. We need Orcl stock to decline from current levels to around $25 to be able to purchase the Call options for my desired price…The beauty of this trade is that I do not need any money as collateral to purchase the shares and just need the money to purchase the Call Options. As I demonstrated in Options Trade#1, we needed tens of thousands of dollars in collateral to execute the trade. In options trade#2, my total financial risk is that the contracts could expire worthless at expiration and I would lose $1,650 plus trading fees. So, If I were to purchase 10 contracts at $1.65, it would cost me 1.65 x 100 shares per contract=$165. $165 x10 contracts=$1,650 plus trading fees. For $1,650 plus fees an Orcl bull can get long exposure to 1,000 shares of stock at an exercise price of 30 and we have almost a year for the shares to rise. If Orcl runs to 40 in the next 12 months, our $1,650 trade will be worth over $10,000. Well, that would be excellent in a perfect world and be over a 600% return on our initial $1,650 invested in the Call Options…The beauty here is that we only risked $1,650 to potentially make $10,000. Now let’s put the actual cost of purchasing 1,000 shares of Oracle stock, which have no expiration date in perspective. For us to purchase 1,000 shares today, it would cost us $27,340 plus trading fees. This is an example of how Call Options can give you great leverage for only a small fraction of the cost of purchasing the actual stock to get in the game!!! Optionshoney disclaimer. Check out the five year chart on Oracle Corp below, courtesy of YahooFinance. Notice the huge volume at the bottom of the chart on Oracle’s recent quarterly earnings report. Till next time. —Timmy B