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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: Just_Observing who wrote (21603)	4/26/1999 11:36:00 AM
From: nihil	Read Replies (2) \| Respond to of 74651

As far as one can find out, MSFT has never had any stock put to it. I do not believe that these puts can be traded (they are not exchange listed and I doubt that they are registered securities). Softy's great advantage over others who use this tactic is the lack of major instability in MSFT prices, due in part to expert management of earnings. Both Intel and Dell sell puts and have been exercised on, while usually receiving hundreds of millions in premiums. The puts are negotiated sales through investment bankers and are sold to investment funds who hold large amounts of these stocks. If you are a growth fund you must invest in these stocks or be left behind in the race. Dell was the best performing large firm, and the saying is that high return entails high risk. Puts can help protect the fund against a collapse at a modest cost compared to the expected (best case) returns. The premia do not get closed out to earnings. When the puts are sold a reserve (liability) is established and as the puts expire the liability is written off and the offsetting asset entry goes to owner's equity or an account "premia earned on puts or options sold." Since these are capital transactions and have nothing to do with income, there is no tax to pay. Any company can do this stuff if it wishes. I expect someday soon a company will figure out how it can guarantee the price of its stocks by selling puts to its stockholders. This would create a preferred class of stockholders. Intel's step-up warrants were equivalent to deep in the money LEAPS, without the ugly LEAP commissions. The options that most tech companies grant to their employees are real options but are usually vested over time, are long-term (5-7 years), and not transferrable. Most modern companies will develop complete options strategies as they catch on to the advantages. Nearly all will take on more risk than Softy because their stocks don't pack the oomph.