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FORBES ASAP ARTICLE ON DELL SHOW ME THE MONEY Dell makes more money gambling on its own stock than it does selling computers. How much more? In the past three years, Dell has made more than $3.1 billion playing the market, while the company's net income was just $2.5 billion. The key to Dell's success is this lucrative sweepstakes is betting that its stock will go up by selling "puts" and buying "calls." A put is an option to sell stock at a certain price. In a typical arrangement, an investment bank buys the right to sell Dell its own stock at a price below the current market value. In essence, the investment bank is betting Dell's stock will go down; Dell is betting it will go up....and it has: Since February 1996, Dell's stock has grown more than 4000%. That means mountains of cash from all those expired puts. No wonder other tech companies like Intel and Microsoft are playing the game. In fact, in the third quarter if 1998, Microsoft pocketed an estimated $225 million from the sale of puts alone. The Redmond, Washington, software company's revenues in the same time period were $3.95 billion. If selling puts weren't lucrative enough, Dell goes one step further. It takes its pile of put cash and uses it to buy a plethora of calls - an option to buy a stock at a certain price above the current market price. Again, Dell is betting that its own stock will go up and up. But what happens to Dell if its stock doesn't continue to go up and up? The liabilities could be huge - say $3.1 billion in the other direction. Is any of this illegal? Apparently not. Only professional athletes can't bet on their own team to win. But the game of playing puts and calls, and the inflated bottom lines that result, is just another example of the death of good old reliable earnings reports. Forbes ASAP April 5, 1999
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