Still, some insist that if the corporation buys back enough shares the scarcity will increase shareholder value. The market today doesn’t consider IBM worth much over $130 a share despite its spending $201 billion on its shares since 1995-seventy percent more than its market value at the end of 2021. This comment completely ignores the demand side of the supply-and-demand equation. One investor on Seeking Alpha commented that “I want to be the last person holding that last share worth $100+ billion dollars!" The logic just seems so darn rational: reduce the supply of something and demand will drive the price of that something up. It is hard to convince shareholders that sometimes share buybacks don’t work. This information should only be one arrow in your long-term investment quiver.Īt the end of the article, I will propose what I believe is a sales-productivity javelin you might consider adding to your investment-decision quiver. Although, I am only following the data where it leads, I will withhold my personal opinion. This article is written for long-term investors. Long-term investors will need to be prepared with some in-depth perspective on past performance, and then decide if IBM's shareholder-return history might repeat itself-or at least rhyme. Short-term investors will most likely play the psychology of the market depending on if "da market" at the time perceives stock buybacks as a good or bad corporate investment-buy or sell on the news, so to speak. As a short- or long-term investor, when Arvind Krishna restarts or drops this authorized expenditure what will your reaction be: buy, sell or hold? These were "su-spend-ed" with the Red Hat acquisition. In this strategy, your stock runs the risk of being called away if it trades above $215, but your downside risk is capped at $165.RBFried/E+ via Getty Images How will you react to an IBM share-buyback decision?Īccording to IBM's ( NYSE: IBM) 20 Annual Reports, the corporation has $2 billion that it can spend on share buybacks (repurchases). In this case, writing the 3-year $215 calls will fetch $19.90 in premium, which can be used to buy the 3-year $165 puts at $19.52. It consists of a covered call, with part or all of the premium received used to buy a put. Costless Collar: This strategy enables you to construct a collar that establishes a trading band for your XYZ holdings, at no or minimal upfront cost.This strategy would not require you to exercise your ESOs and can be pursued as a stand-alone strategy as well. If the stock does not decline below $150 within three years' time, you would lose the full $7,100, and if the stock trades between $135.80 and $150 by then you would recoup part of the premium paid. You would break even if XYZ trades at $135.80 and would make money if the stock trades below that level. Your outlay in this case would be $7,100 for five contracts. You think the stock could trade below $150 over the next three years, and therefore buy the three-year $150 puts that are available at $14.20. This strategy of buying puts will only provide you downside protection, but will not resolve the time decay issue.
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