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Strategies & Market Trends : Value Investing
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To: TimbaBear who wrote (15043)8/3/2002 10:18:40 PM
From: Jurgis Bekepuris  Read Replies (1) of 78523
 
Timba,

Dell's problems with puts are somewhat unrelated to the their option story. Selling puts was a market speculation: it worked well in bull market, it backfired in bear market. It is like buying shares at the same time as options are issued. If shares go up and options get exercised, this is a smart move. If shares go down, it is a stupid move.
On the other hand, if company does not buy stock when it issues options, it loses in bull market and wins in bear.

BTW, Dell cannot cover their put obligations by issuing shares, since they have an obligation to BUY shares, not to SELL. Unless they decided to sell enough shares to be able to buy them under puts for much higher prices. This would be totally stupid.

This is not to defend Dell, just to clarify two points.

Jurgis
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