Earn 9.6% Today or Buy ORCL 50% Cheaper – It’s a Win-Win
At about $156.48 a share, Oracle (ORCL) is trading about 52% below its 52W high.
Do you think ORCL stock is a good long-term bet at current levels? What about at a 50% discount at about $80 per share? If you think that is a steal, and have some cash ready to go, here is a trade.
9.6% annualized yield at 50% margin of safety, by selling Put Options.
- Sell a long-dated Put option expiring 1/15/2027, with a strike price of $80
- Collect roughly $412 in premium per contract (each contract represents 100 shares)
- That’s about 5.6% annualized yield on the $8,000 you’re setting aside for the possibility of buying the stock
- This cash parked in a savings or money market account will earn an extra 4.0%, taking total yield to 9.6%
- And you give yourself a chance to buy ORCL stock at deep discounted price of $80
However, this is not the only stock strategy in town. Trefis High Quality Portfolio is a sophisticated framework designed to reduce stock-specific risk while giving upside exposure.
Possible Trade Outcomes: You Win Either Way
| Stock Price Outcome | What It Means For You |
|---|---|
| ORCL stays above $80 | You keep the full $412 premium – 5.1% extra income over the next 337 days on cash that might otherwise earn you 4.0% or less. You never buy the stock and simply walk away with the cash. |
| ORCL closes below $80 | You’ll be obligated to buy 100 shares at $80. But thanks to $412 premium, your effective cost basis is just $75.88 per share – a roughly 52% discount from current level. |
But to hold this trade with conviction, you want to see long term upside in the stock. Because if it comes to it, you want to be excited about buying the stock cheap.
First, you want fundamentals to check out. For details, see Buy or Sell ORCL Stock or check Oracle Investment Highlights
Second, you want to better understand competitive advantage and industry tailwinds.
Why Hold ORCL Stock Long-Term
Oracle’s wide moat is fortified by extremely high switching costs for its mission-critical database and ERP software. This durable competitive advantage, combined with a strong secular tailwind from the enterprise shift to cloud computing and data analytics, makes us comfortable holding the stock for a 5+ year horizon if assigned. The company’s ability to gain market share in the critical cloud ERP space further validates its long-term strength.
Competitive Advantage
We classify ORCL’s economic moat as WIDE, with the primary source being Switching Costs
- Migrating from Oracle’s database and enterprise resource planning (ERP) systems is notoriously complex and costly, involving significant challenges in data migration, schema conversion, and rewriting application code, which effectively locks in customers.
- In 2024, Oracle surpassed its primary competitor, SAP, to become the leading provider of ERP applications, demonstrating strong customer retention and an inability for competitors to easily capture its market share.
- Oracle has maintained its top-ranking position as the most popular database management system for several years, underscoring its deep entrenchment in enterprise IT infrastructure.
See Oracle Full Analysis.
Industry Tailwind
The industry tailwind is STRONG, with CAGR projection of 13.95% (Mordor Intelligence)
Secular Trend: Shift to Cloud Computing & Big Data Analytics
Key Risks: The primary risks to the industry include data security concerns and the increasing complexity of managing large-scale, distributed database systems.
Financial Guardrails
Cash Generation: Positive Free Cash Flow
Balance Sheet: Oracle carries a significant amount of net debt, however, the debt is well-covered by operating cash flow and interest payments are well-covered by earnings (EBIT), mitigating immediate solvency concerns.
If you are not comfortable with options or stock-specific trades, Portfolios are the way to go as they can protect and grow wealth even better.
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