Ceo and covered put options

Discussion in 'Trading' started by phubaba, Oct 16, 2008.

Can ceos buy puts to protect their stock value.

  1. YES

    1 vote(s)
  2. NO

    2 vote(s)
  1. phubaba


    I've tried to do some searching but found nothing online for the following question:

    Can a CEO buy put options on their stock to protect the losses in the stock value.

    For example if I was a CEO, and owned 100 shares trading at 30, could I buy 1 put option at 25 strike (to cover the 100 shares) to protect against losses.

    Does anyone have an sec ruling explaining this?

    Now logically there are arguments for both sides:
    The above position is simply a call option and only has upside. (So the CEO isn't betting on a fall in their company's stock, just protecting against one).
    Why would a CEO buy put protection, wouldn't that imply that he thinks the company's stock is going to go down in value? (I think this is ambiguous though because selling stock could mean many things)

    What are people's take on this, and also can anyone provide factual evidence for what the real rules are? I failed at google. :(

    please note I'm not saying buy more put options than would cover the stock because this would create a position that will make money when the stock's value falls.
  2. 1) 0-1.
    2) High level company officers should not be able to buy puts nor short-sell their own company's shares. You want to avoid what went on during the late-1800's up until the Depression when officers were blatantly manipulating their company's shares back and forth.
    3) Officers can "get around" legal guidelines by opening up secret accounts with firms.
    4) Officers should be focused on the long-term and the long-side.
    5) Even if a company doesn't succeed, there are other ways to get money "out".
    6 Take it with a grain of salt. :cool:
  3. Called a collar done all the time.