Good News From Management

While many may be looking to get out of the company after this disappointing quarter, there are plenty of reasons to be optimistic about the future. Some would even say that the stock is on sale at these prices and should be snapped up. One reason for this optimism is the positive outlook that management gave for the next quarter. They noted that certain key sales were not closed this quarter and that may have had some impact on the lower than expected earnings. When these sales close next quarter, they could end up boosting the earnings for that quarter. That means that the company very well could beat earnings next quarter. The management also increased its outlook for that next quarter which should boost investor confidence.

How The Currencies Played A Role

Oracle is a large international company. They have to deal with the currencies of plenty of different countries and regions. As such, the conversion rate of those currrencies can differ from one quarter to the next wildly. Having some loss of value in currencies attributed to at least some of the miss in earnings.

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Overly Concerned Sellers

Time and time again sellers have played the sell now and ask questions later game with their stocks. Whenever a company produces the slightest bit of disappointing news, the investors have sold off the stock without thinking about it. They do not want to be the ones left holding the bag, and that fear is understandable. However, those who jump in at these prices are often the ones able to make the most on their money. Oracle is a company that has not produced an earnings miss in 10 plus years. It is no wonder that some investors have been scared into selling their shares on the news right away. That being said, this may be the time to be adding to a position rather than subtracting from it. Even those already holding shares can benefit by purchasing more in order to average down on their investment. Oracle likely has a much brighter future ahead.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Break-even – I break-even on this trade if ORCL closes at $27.55 or $30.45 by December 23, 2011.

Unprofitable – If ORCL closes between $27.55-$30.45, this trade will be unprofitable. The most I can lose is the amount I trade for the straddle, $1.45.

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The reason I like this trade: We have seen huge movements on earnings and I always like to be long premium going into the number.  I tried this for RIMM, but it worked out for a small loser.  This time, I think ORCL will sell-off, but I want to play movement not direction.  Please feel free to email me with any questions regarding this trade at Andrew@KeeneOnTheMarket.com.