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Technology Stocks : Oracle Corporation (ORCL) -- Ignore unavailable to you. Want to Upgrade?

To: Michael Olin who wrote (6485)	3/17/1998 3:12:00 PM
From: Dan Breslau	Respond to of 19080

Perhaps we're all missing something. What's the cost basis from which Merrill calculates the % increase at which they redeem the shares? Is it today's price, next month's, or perhaps a fixed cost (say 32) ?

To: Michael Olin who wrote (6485)	3/17/1998 6:17:00 PM
From: lml	Read Replies (1) \| Respond to of 19080

Good question, Mike. Caveat, I haven't seen a prospectus, so I REALLY do not know the structure of the security. I attempting myself to understand how the security MIGHT work based upon the press release & my own thoughts of why Merrill has underwritten this issue. To answer question, $10 is face value of the security, similar to par value assigned to common stock. The $10 face value is in no way representative of the market value of one unit of the security. The offering might have been priced at, for example, $15. Therefore, the purchaser would be assured of a $15 return of principal in 2003, and assuming ORCL goes from $30 to $60 a share, another $10 on top of the $15; ML takes home $20 for its risk. The face value is just a benchmark upon which to apply the percentage appreciation. Remember, I have not read the prospectus. I am only speculating here; & I am doing so in an attempt to understand how the security MIGHT work. I invite comment, especially from those who have seen the prospectus -- so we can all get the REAL story. Notwithstanding, it makes good discussion.

To: Michael Olin who wrote (6485)	3/19/1998 8:41:00 AM
From: Almasy	Read Replies (1) \| Respond to of 19080

I think because each $10 security represents 1 Oracle share. Therefore, if the stock goes up $30, or 100%, they only have to pay out $10 for EACH share held. Essentially this is the same strategy as writing covered calls - Oracle is getting a premium ($10) for holding the security. Although they have to give it back to you, they get the use of the money for 5 years, plus upside (although they are giving some of that to you). However, you are right that you have to put up less money to get the same 100% upside (in this example). As I see it you can look at it three ways: 1. You think Merrill's position on ORCL is wrong and therefore you are betting that they are wrong & the stock will be below today's prices in 5 years. However, it will need to go down more than the equivalent cost of money for you over that period for you to make a profit (my guess is that Merrill have a pretty safe bet here) 2. You think Merrill are right but you can't afford $30 a share. The stock will be much more valuable in 5 years time so you pile in & get more of these securities than you would be able to by buying straight stock. 3. You think ORCL will be approximately at the same price in 5 years time - in which case, why are you wasting your time on this thread instead of looking for more profitable investments?