Well, you were doing OK until the second half of your post, where you made it clear that your objective is punishment, not clarity of reporting.
BTW, if an option can't be traded (in your examples, the buyer and the writer have arrived at a price where a trade occurred - it doesn't matter that one attributes greater value to it than the other), but only exercised, then it's value becomes simply the present value of the expected future intrinsic value, where that expected future IV is the mean of a range of possible future IVs and the discount rate used is adjusted for the risk reflected in the dispersion of that range of outcomes.
An employee, if he were valuing it this way, might assign value directly to the option at grant, but there is no evidence that they actually do. Did you know that a study done at Rutgers University indicates that, overall, employees getting options are paid about seven percent more in wages than comparable employees in comparable companies that do not give out options? This seems to contradict the notion that employees attribute material current value to the options.
Furthermore, since most options vest over time, valuing them at grant rather than at vesting is spurious at best as it assumes the company has already received the benefits of the employee's work that is supposedly being exchanged for the option.
Finally, Black-Scholes was built to value options where the underlying security's value is assumed to be independent of the actions and behavior of the option holder (you know, efficient markets, random walks and all that stuff). For senior executives and, in the aggregate, the rank and file employees of a company, that is likely not the case. If the future value of Intel were really not a function of the issuance of the options it grants its employees, why grant them at all?
Bob
PS: Can you answer my question about booking gains from the declining value of outstanding and already expensed options? |
