Business Case Studies & Business Publications

International Business Machines Corporat...

Eades, Kenneth M.,...

Case

International Business Machines Corporation: Issuer Put Options

Eades, Kenneth M.; Posell, Jordan

F-1009 | Published September 29, 1992 | 14 pages Case

Collection: Darden School of Business

Product Details

A new ruling by the Securities and Exchange Commission has provided the International Business Machines Corporation (IBM) the opportunity to sell put options on its own shares. IBM's assistant treasurer is considering the merits of selling puts in conjunction with the company's ongoing need to repurchase its own shares to satisfy the needs of its Employee Stock Purchase Program (ESPP). The strategy under review is to use the income from the sale of the puts to offset the price of the shares repurchased each month for the ESPP. The student must assess the probability of the February 1992 puts being in the money and determine whether the risks of writing puts are sufficiently manageable to permit the writing of puts to become a viable, long-term strategy.