Oracle Earnings

About a week ago, two sell-side analysts took down their target price estimates for Oracle, causing the stock price to fall for a few days. I kicked myself for not haven taken profit from the IOI position in the highly successful and highly levered OTM call options that formed one leg of the “Long Diagonal” strategy I recommended in this IOI Tear Sheet.

Tonight, after hours, Oracle announced quarterly earnings that seemed not to disappoint the after-hours investment crowd. No telling which way the wind will blow tomorrow morning, but at last check, Oracle is back above $35 / share and just under my $37 fair value target.

My present thought is that if Oracle does ride upward for a few days on the back of news that I would consider immaterial, but the rest of the market seems to like, I may well take profits on the $37-strike call LEAPS purchased at the end of June and subsidized by a simultaneous sale of short puts.

Unfortunately, I was under-exposed to this investment–thinking that I would be clever and “ladder in” to a 20% position in Oracle, I only took an initial 10% position (including the stock and ITM option position). Unfortunately, the opportunity to invest more at a lower price did not materialize and what would have been a wonderful investment has turned out to be just a very nice one.

This is the wonderful thing about investing–it always leaves one with the opportunity for regret, even when successful.

Even if I close the OTM part of the investment, I will leave most of the investment as it is. The majority of capital at risk is invested in the stock and ITM option portion, and I will let this part of the investment run since I am conscious of a behavioral bias that Kahneman and Tversky named Prospect Theory.

Prospect Theory Utility Curve
Humans have kinky utility

Cisco Systems (CSCO) Redux

Last week, I was watching the price of Cisco fall further and further after its most recent disappointing earnings announcement (time for Chambers to leave, I wonder?!).

I started to get tempted to sell 90-day ATM put options on the company to collect a bit of low valuation risk revenue. However, I have been working so hard on both revising the manuscript of my book (more about that below) and in my position at YCharts, that the good idea never got further than just that–a good idea.

For those of you who are interested, I am watching Cisco’s price and may start to sell ATM puts if the price gets down to the $20 level or so. Right now, with the stock price around $21 / share and ATM put options trading for $1, my Effective Buy Price of ($21 – $1 =) $20 does not look that attractive to me vis-a-vis my $22 worst-cases valuation. 

I always think about sold puts from the perspective of “Where would I be a purchaser of this stock?” Right now, a 10% prospective return (implied by an EBP of $20 and a worst-case valuation of $22) just does not excite me very much.

I haven’t had the time to refresh it, but take a look at the valuation of Cisco I did back in August:

IOI Tear Sheet on CSCO
Valuation Notes on Cisco
Tear Sheet Users’ Guide

The Framework Investing Update

The manuscript is turning out great! I can’t wait for you to read it. My first draft was finished in the late summer, but I put that draft away for a few months and when I picked it up again, had a lot of good ideas about how to structure parts of it.

This re-thinking of the structure has been great for the book, but tough on me as I have had to spend more time revising than I had originally thought. I am looking forward to finishing up and delivering to McGraw-Hill early next year. After a weekend of winter camping and a 20-mile hike to clear my mind, I’ll be back in the saddle and producing more content for the IOI site and blog.

In the mean time, I have turned away a few people who have asked me about coaching. I’ve got one client just finishing up, and until I get the manuscript out the door, I really need to concentrate on that and squander a few hours a night sleeping… I appreciate everyone’s interest. Stay tuned–I’ll be back in the saddle again soon.