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Technology Stocks : How high will Microsoft fly?
MSFT 472.58-1.2%10:33 AM EST
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To: E. T. who wrote (43548)4/26/2000 9:58:00 PM
From: Just_Observing  Read Replies (4) of 74651
 
MSFT is short 163 million puts at somewhere between the high 60s and the high 70s. MSFT may be required to buy the shares and that will take away $11 billion of the cash horde (Info. from Bill Fleckenstein). Every one dollar fall in MSFT's price is a loss of $163 million on the naked options trade.

Now MSFT has gone and issued another 70 million shares to employees. This will put downward pressure on the stock. This is exactly the wrong thing to do. The lower the stock goes, the larger the losses, and the greater the downward pressure on the stock since the earnings are being eaten away at $123 million per point. The equilibrium point for the stock price in such a scenario may be very low.

If we have a severe market correction ( MSFT into the 50s -a low probability event), MSFT could lose billions of dollars, unless they have begun to cover some of their 163 million puts. These are trying times for MSFT and, IMHO, the new 70 million options granted to employees is a dangerous decision.
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