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Using Exchange‐Traded Equity Flex Put Options In Corporate Stock Repurchase Programs

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  • James J. Angel
  • Gary L. Gastineau
  • Clifford J. Weber

Abstract

Casual evidence suggests that as many as 10% of the companies repurchasing their stock over the past decade have used the sale of puts on the company's stock as part of the repurchase program. This article describes a new instrument for such corporate stock buybacks recently introduced by the American Stock Exchange: Equity Flex puts on the issuer's stock. When and if the puts are exercised, the company's shares are retired—often on better terms and with better cash flow timing than the company could achieve with a conventional stock repurchase program. To date, such stock repurchase programs have been conducted primarily using over‐the‐counter put options. The new Equity Flex puts promise to eliminate the relative advantages of OTC transactions and offer stock repurchasers better pricing and increased liquidity. Use of exchange markets can also help overcome any reluctance a financial officer might have to rely on prices offered by a single dealer.

Suggested Citation

  • James J. Angel & Gary L. Gastineau & Clifford J. Weber, 1997. "Using Exchange‐Traded Equity Flex Put Options In Corporate Stock Repurchase Programs," Journal of Applied Corporate Finance, Morgan Stanley, vol. 10(1), pages 109-113, March.
    • Handle: RePEc:bla:jacrfn:v:10:y:1997:i:1:p:109-113
    DOI: 10.1111/j.1745-6622.1997.tb00131.x
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    Cited by:

    1. Dirk Jenter & Katharina Lewellen & Jerold B. Warner, 2011. "Security Issue Timing: What Do Managers Know, and When Do They Know It?," Journal of Finance, American Finance Association, vol. 66(2), pages 413-443, April.
    2. Gyoshev, Stanley B. & Kaplan, Todd R. & Szewczyk, Samuel H. & Tsetsekos, George P., 2021. "Why do investment banks buy put options from companies?," Journal of Corporate Finance, Elsevier, vol. 67(C).
    3. McDonald, Robert L., 2004. "The tax (dis)advantage of a firm issuing options on its own stock," Journal of Public Economics, Elsevier, vol. 88(5), pages 925-955, April.

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