<<Perhaps someone can provide a real company calculation that can be followed given the footnotes in the Form 10-K.>>
Ugh .. as in ugly. You really don't want to step through the calculation by hand. While the option value is expressed as the sum of two terms, each term involves exponentials and normal probability distribution functions. And calculating the individual terms provides no insight.
You WANT an option calculator for this. Plug in the values .. and out pops the answer. But how suitable is the "standard" option calculator?
The standard calculator doesn't allow for input of vesting schedules, for example. Well let's see how it does anyway. Using an Excel calculator (I obtained from an SI member), some results are:
Ticker..Fiscal..Reported..Calculated Option Prices (FAS 123)
QCOM....2001....$44.25....$44.33
QCOM....2000....$48.62....$48.86
QCOM....1999.....$7.14.....$7.14
QCOM....1998.....$3.97.....$3.97
QCOM....1997.....$3.30.....$3.30
CSCO....2001....$13.31....$12.20
CSCO....2000....$19.44....$16.28
SEBL....2001....$16.15....$16.16
The FY2001 calculator inputs, from the respective 10-Ks:
Tckr...Exercise..Volatility..Int Rate...Life......Div
QCOM...$71.17....63%.........5.0%.......6.0 yrs...0%
CSCO...$39.93....34.8%.......5.4%.......3.1 yrs...0%
SEBL...$26.24....89.3%.......3.83%......3.4 yrs...0%
Now compare the calculated results with the reported results. Ignoring CSCO, the largest error is 0.5% (QCOM FY2000). Half the numbers are accurate to within a penny. (That's acceptable to me .. especially since we don't have a better tool.) And having a better calculator wouldn't do us much good. Evidenced by the CSCO results, not all companies are doing the same thing anyway.
Enough already! Where's a calculator?
axone.ch
This calculator may be a little aggravating. It has European style dates which often causes USAers to make errors. And since it is designed for futures options, it can't handle non-zero dividends. But the calculator accepts an option life greater than 3 years, and its results .. which exactly match my Excel calculator results .. are accurate IMHO.
Some words of advice on using the calculator:
.. leave the "reval. date" at default, and while watching out for those fractional years, just add the option life and enter the sum at "exp. date",
.. set "pos. size" equal to 1,
.. change the option style from European to American, and
.. set "spot" (market price) equal to strike (exercise) price and,
.. hit Return, if you see one or more numbers in blue.
Ron
P.S. This on-line calculator is actually the first one I found. You might be able to find a better one by searching the net. |
