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Technology Stocks : Long Term Investors' Outpost
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To: Uncle Frank who wrote (342)8/8/2002 10:59:12 AM
From: TimbaBear  Read Replies (1) of 562
 
Uncle Frank

>> One day the company sells shares at a certain price to the optionholder. On that same day he/she can sell them into the market at three times the price. That is a loss to the company. <<

By the same reasoning, if a company were to write a long term contract to supply a customer with a component at $10, and if the spot market was $15 at the time of a particular shipment, the company should apply a $5 offset to any profit they made on the transaction

No Frank, the case of the stock buy is an expenditure of actual cash on the part of the company, whereas your example is the absence of extra profit. Quite a difference. If, in your example, the company had to purchase the component at $15 and supply it to the client at $10 to meet the terms of the contract, then the company would record a loss on the transaction, not say there was no effect.

The accounting regulations should be changed to require that no dilution occur due to stock options and that any purchases made to prevent that dilution be counted as an expense. Then the investor would be truly informed as to the true cost of the option program. The current arguments have their eye on the wrong ball. It's not the option "issuance" that should be expensed but, rather, the cost to the company when the options are "exercised".

TimbaBear
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