The financial effect of put option issuance

Put option issuance and stock repurchase are noted to signal firm\u27s private information to the market. The issuance of put option is thought to be very risky for the firm, because if the stock price doesn\u27t increase above the exercise price of put option, put option holders exercise their option and the firm has to repurchase its own stock at the exercise price that is higher than the market price. Therefore, only if the manager has a bright prospect in the future, he makes a decision to issue put option. First, we compare the put option issuance with the stock repurchase. And then, we analyze the announcement effect of put option issuance on the stock price and show a separating equilibrium in which the high-quality firm issues put option and the low-quality firm issues common stock