Oracle-Investing With A Measure of Security

Quick Summary:  Watch and Wait for a better price!

Oracle is one of the premier companies of the new economy.  Unless you are a tech expert that works with multinational or very large domestic companies, a government agency that has a need for their products or have a degree in computer sciences you probably like me don’t fully understand Oracle or their products.  They seem to make lots of money and are competitive with only SAP and a few other companies.  The never ending thirst for data by corporations and governments seems like it puts Oracle in a sweet spot of some kind.  Technically Oracle’s Point and Figure chart is on a sell signal.  Oracle peaked at 36 near the beginning of the year and has sold off after forming a double top on the Renko chart early this year.  (see below).

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Oracle Renko - Version 3

Still the stock yields a meager 1.5 percent.  That could mean the stock is ultimately going to be cut in half to yield 3 percent or that Wall Street insiders see more growth in the database and cloud related software Oracle sells.  If it is cut to 15.50 the stock would yield 3 percent and you could sell covered calls to increase your yield.  Not bad.  But if your entry price is 36 you will have to live long and prosper to recover your money.So for the time being Oracle should just be watched.  It has multiple sell signals and the entire market may be headed for a correction.  For years Oracle bounced between 22 (2007) and 14.x (2008-9).  It then appeared to break out in 2011 and zoomed up to the mid thirties which has marked the top of the trading range for the period 2011-13.  If and when Oracle approaches 24 to 26 selling the 2015 or 16 puts at 22 to 26 would be a reasonable trade.  That appears to be the bottom of the new trading range.  Market turmoil should drive Oracle down to the low twenties.  Of course if the pattern breaks down and Oracle tumbles to the teens then the trade is going to be one that results in a loss.  If Oracle holds to the new bottom then with any good news it should recover and the trade will make a nice profit.  A speculative trade would be to sell the 20 2015 put for $4.  Currently it is priced at less than $1.  Therefore the stock would have to fall 12 points or so or there would need to be a flash crash to get that price.  With the war drums sounding, don’t believe it can’t happen.  If you have a little money to invest in Oracle this strategy is very conservative and really the stock may never see 20 again but if it does your put position would give you the stock at 16 where it would be yielding 3 percent.  Otherwise you would just keep the cash which is not a bad alternative.

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