Do Firms Engage in Share Buybacks By Selling Puts?

[Arjun1]

If I were CEO of a public corporation instead of doing outright share buybacks, I'd probably just sell puts each time my firm's stock goes down 1% from the HW mark.
If it goes down another 1% I'd sell another round of puts.
Put sales would be cash secured (no leverage) and I would never commit more than like 15% of cash on hand per month.
If the puts expire, the premium collected helps reduce cost basis of future buybacks.
If the puts get exercised, the premium reduces the cost basis on shares I would of bought anyway.

I was thinking of this the other day when I heard Apple has 70+ billion in cash that is earning sub 1% interest.
What will they do will all that money?
They're not going to pay a dividend anytime soon and that is way more cash than they need to acquire some of the biggest firms in world.
So why not sell puts as a way of doing share buybacks since the stock is still pretty cheap?

 

[Maverick74]

Quote from Arjun1:

If I were CEO of a public corporation instead of doing outright share buybacks, I'd probably just sell puts each time my firm's stock goes down 1% from the HW mark.
If it goes down another 1% I'd sell another round of puts.
Put sales would be cash secured (no leverage) and I would never commit more than like 15% of cash on hand per month.
If the puts expire, the premium collected helps reduce cost basis of future buybacks.
If the puts get exercised, the premium reduces the cost basis on shares I would of bought anyway.

I was thinking of this the other day when I heard Apple has 70+ billion in cash that is earning sub 1% interest.
What will they do will all that money?
They're not going to pay a dividend anytime soon and that is way more cash than they need to acquire some of the biggest firms in world.
So why not sell puts as a way of doing share buybacks since the stock is still pretty cheap?

Firms do that. DELL use to be one of the biggest put sellers in the market back in the day.

 

[rmorse]

Quote from Arjun1:

If I were CEO of a public corporation instead of doing outright share buybacks, I'd probably just sell puts each time my firm's stock goes down 1% from the HW mark.
If it goes down another 1% I'd sell another round of puts.
Put sales would be cash secured (no leverage) and I would never commit more than like 15% of cash on hand per month.
If the puts expire, the premium collected helps reduce cost basis of future buybacks.
If the puts get exercised, the premium reduces the cost basis on shares I would of bought anyway.

I was thinking of this the other day when I heard Apple has 70+ billion in cash that is earning sub 1% interest.
What will they do will all that money?
They're not going to pay a dividend anytime soon and that is way more cash than they need to acquire some of the biggest firms in world.
So why not sell puts as a way of doing share buybacks since the stock is still pretty cheap?

Late 90's, tech firms were selling OTM puts and buying OTM calls, and bidding for stock. The option trades were all done OTC and the brokerage firms would layoff risk in the regular markets. The option trades were VERY large for those days.

 

[sle]

yes, they certainly do, in variety of forms. in fact, a fairly common exotic structure is one where the company mandates a wall street firm to repurchase some amount of their stock over X days at VWAP + a discount. The reason for discount is that that firm has a right to complete the purchase early. Also selling puts but not as obviously. If you see an accelerated stock repurchase announcement on the tape, sell straddles on the stock - the movements are going to be severely muted because of the delta hedging in large size.