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Technology Stocks : Dell Technologies Inc.

DELL 122.00

+2.7%

12:24 PM EST

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To: Chuzzlewit who wrote (80704)	11/16/1998 7:41:00 PM
From: BGR	Read Replies (1) of 176387

CTC, My assumption in deriving average buyback price was that if during a quarter a company improves cash and debt position yet buys back shares, it's average buying price must be less than net earnings for the quarter divided by the number of shares repurchased. Richard explained that profits from selling puts do not show up in earnings statements. In that case that must improve the cash position and whether or not used in share buybacks is clearly value additive. Going by my previous example of a company with 100 shares worth 100 each, 9000 other assets and 1000 cash, if they sell puts (which expire worthless) to collect another 1000 (say), while that will not show up in the earnings statement should increase the per share value to 110 (total assets increased by 1000 to 11000 while number of shares remained same at 100). Alternatively, they could have purchased 20 shares back for 2000, reducing total shares to 80 and total assets to 9000 resulting in share price of 112. Another way to put this is to say that they bought back 20 shares at a price of 5 per share (i.e. less than market value) and forget about the put selling. This is like a 10% boost to the EPS. It is almost like DELL having a side business in insuring a commodity over the risk of which they have unique knowledge and control - their company value - and hence are in a far better position than conventional insurers. I am not sure why you would consider that unethical, however. According to efficient market hypothesis, the fact that DELL is selling puts should result in the stock price going up and the put price going down in a perfect market. Nothing different than insider buy/sale. -Apratim.

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