SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Biotech / Medical : Sepracor-Looks very promising
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  
To: rkral who wrote (6051)6/20/2002 5:49:10 PM
From: Biomaven  Read Replies (1) of 10280
 
Ron,

1. Volatility: Yes indeed, the current estimates rely heavily on historical volatility. However, studies have shown that historical volatility is not very predictive of future volatility. In fact future volatility is just as hard to predict as future stock prices. (There are some companies with very stable volatilities but these are in the minority and tend not to be big users of options anyhow).

2. Most employee options have a ten year life. However, if the employee terminates the term immediately gets reduced. Further, because the options are not freely transferable, people exercise them much before they expire (something you would virtually never do in a tradeable option). The net result is that employee options are around for much less than their statutory life before they get exercised or cancelled. (Four years or less is typical.) However, it is impossible to predict at grant date what their true life will be - it depends on employee turnover rates and the stock price.

If you plug the historical volatilities for most biotech or high tech companies together with a long life into Black-Scholes you come up with ridiculous numbers - values for the option of something like 90% of the stock price. Just ask any employee whether they'd prefer an option to purchase 100 shares or to be given 90 shares outright (with the same vesting schedule).

Peter
Report TOU ViolationShare This Post
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  

HomeMailHotSubjectMarksPeopleMarksKeepersSettings
Terms Of UseContact UsCopyright/IP PolicyPrivacy PolicyAbout UsFAQAdvertise on SI
© 2025 Knight Sac Media.  Data provided by Twelve Data, Alpha Vantage, and CityFALCON News