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Politics : Formerly About Advanced Micro Devices
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To: Elmer who wrote (72872)9/24/1999 11:00:00 AM
From: Kevin K. Spurway  Read Replies (2) of 1571586
 
Re: "Intel sells a put and gets a premium. The low ball puts get assigned on a dip and Intel buys the shares at say $60. Next April, Intel grants those same shares to employees at the new fair market value of $80. Some time later, the value goes up and the employee exercises the options. Does the option exercise sale get reported as profit that quarter? Seems to me Intel makes money."

When Intel is assigned on the put and buys the stock, this is the corporate finance equivalent of a cash dividend (the only difference is tax consequences to the investor). Intel doesn't make money on shares it holds in treasury if the stock rises--rather, the relative value of the company per OUTSTANDING share rises more for a given increase in market cap than if the buyback had never taken place. When an Intel employee exercises his option, existing shareholders are diluted to a greater extent than value is replaced in the company (payment of the exercise price to Intel). Intel does not make money on the transaction. The shareholders (net) lose value as sure as if the employee had been given a raise instead of the options. The only difference is in the accounting.

That being said, I think stock options are a necessary and beneficial incentive, and I'm sure Intel's plan is quite fair.

Kevn
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