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Strategies & Market Trends : Zeev's Turnips - No Politics
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To: Joseph Beltran who wrote (98354)8/16/2002 12:15:00 AM
From: Joe Smith  Read Replies (2) of 99280
 
Maybe you can explain it to me. No one has so far and i do believe that there may be an explanation...Why should options be expensed? No money ever changes hands between the option holder and the company. No cash flows out of the company when an option is exercised. The money comes from the new stockholder who purchases the shares on the open market. When an option is exercised, new shares are minted and stockholder equity is diluted. This is the effect of options. That effect is already taken when companies report earnings as they dilute the earnings by including any option share that is above the strike price. Why should options be expensed? This would be a double-whammy. It makes no sense to me. There is no expense. There is only dilution and dilution is already accounted for. Please let me know where i am wrong, because I might be.

Beyond that, many companies have a cap of about 2% of the outstanding shares for options grants. Why is it not in shareholder's best interest to give employees a 2% stake in the company for all of their hard work? I just do not understand why such a great tool as options is looked down upon. Remember the only time when an option-holding employee makes money on their options is when the stock is going up, rewarding options-holders and shareholders alike.
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