Free Republic
Browse · Search
News/Activism
Topics · Post Article

To: Marc Poor
The value of the option can be estimated, then it should be deducted in the current year as an expense..which reduced earnings....Look, companies estimate the useful life of building and airplanes when they take depreciation, so figuring the value of an option isn't that hard....
7 posted on 07/17/2002 9:01:22 AM PDT by ken5050
[ Post Reply | Private Reply | To 5 | View Replies ]


To: ken5050
I await the stock options have no value and it's a free lunch on the stock market crowd.
13 posted on 07/17/2002 9:31:12 AM PDT by razorback-bert
[ Post Reply | Private Reply | To 7 | View Replies ]

To: ken5050
Super excellent!

All of the complicated, complex wheeling and dealing could be avoided if this country would institute a Consumer Tax -- which I've always supported to most everyone's astonishment.

23 posted on 07/17/2002 10:14:33 AM PDT by Jackie
[ Post Reply | Private Reply | To 7 | View Replies ]

To: ken5050
Look, companies estimate the useful life of building and airplanes when they take depreciation, so figuring the value of an option isn't that hard....

It's no more difficult than predicting the future. Yes, one can "price" an option but the "price" is based on an assumption about the future value of the stock.

One thing no one has mentioned is what happens if the expensed stock option expires without exercise --- because the stock has gone south. Does the corporation then reverse the expense and eliminate the liability? In other words does the corporation show a higher profit and increased net worth because the stock has decreased in value? Is that what we want to happen?

In my experience people who propose radical reforms frequently do not think matters through.

28 posted on 07/17/2002 10:24:17 AM PDT by aculeus
[ Post Reply | Private Reply | To 7 | View Replies ]

To: ken5050
Figuring the value of options is indeed very simple. There are at least 60 acceptable price models. Categorizing the issue of out-of-the-money options as an expense is ludricrous, though. Why?

Take a company. On July 15th, it has no outstanding executive options. Its share price is $20. On July 16th, it issues EOs to the extent of 100,000 shares, exercisable at $40 within five years. Using a popular option model (modified B-S-M, if you care) and observing the 5-year volatility of the share price to be 30%, we compute the theoretical fair value of the options, which turns out to be $1.80/share.

Are you claiming that the company has, in one day, incurred an 'expense' of $180,000? At the moment, the company's expense is entirely the cost of entering the options onto their books, call it 1 man-hour.

This is every bit as silly a viewpoint as when the Clintonoids tried to tax homeowners on non-existent 'imputed rent'. How have earnings changed? They haven't, not by a penny. There are already far too many bookkeeping fictions floating around, let's not add one more.

N.B. Now, if the options issued were IN-the-money, that's an entirely different matter.

85 posted on 07/19/2002 2:38:40 PM PDT by SAJ
[ Post Reply | Private Reply | To 7 | View Replies ]

Free Republic
Browse · Search
News/Activism
Topics · Post Article


FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794
FreeRepublic.com is powered by software copyright 2000-2008 John Robinson