“Call it the iPut,” Steven M. Sears writes for Barron’s. “If you believe that Apple’s recent decision to raise its stock-buyback program to $60 billion and sharply increase its dividend is the equivalent of a massive put that will keep the stock from suffering another sharp decline, attractive opportunities exist to trade against the stock’s newfound stability.”
“By selling puts on Apple and agreeing to buy the stock (AAPL) at lower prices should it decline, investors can collect hefty premiums from the options market,” Sears writes. “Indeed, a Goldman Sachs study released in 2009 supports the idea of selling puts on companies with large stock-buyback programs. The study concluded that buyback programs represent a persistent bid supporting stocks that can be exploited by selling puts.”
Sears writes, “Will Apple sell puts as part of its stock-buyback program? …Corporations often sell put options as part of their buyback programs. If Apple does the same, its put prices would almost certainly decline because heavy put selling lowers implied volatility, which is the most critical part of options-pricing models. An Apple spokesperson declined to comment, ‘at least not at this time,’ on whether put selling is part of the buyback program. All that is known thus far is that Apple will begin buying stock under the authorization this month and complete the buyback program by the end of 2015.”
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