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Technology Stocks : Intel Corporation (INTC)
INTC 49.10+5.6%12:47 PM EST
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To: Road Walker who wrote (174591)5/15/2003 1:53:38 PM
From: Saturn V  Read Replies (3) of 186894
 
Ref- Expensing Options

I am against expensing Options with the Black-Scholes Method, ie figure out market price of the options and take a charge for this.

1. Cannot be performed for non-pubic companies. So how do you compare public companies vs non-public companies ?
2. The so called expense is not an expense, but a lost opportunity cost. So it makes for improper accounting.
3. The Black-Scholes pricing formula is based upon the "calculated volatility" of the stock price. If the option charge by this method is significant, the company earnings will be subject to the "calculated volatility" of the stock price. I consider that to be very dangerous positive feedback loop ( pardon the engineering lingo). The stock price is a function of the earnings, which now will be a function of the stock price. A very scary situation , and it makes me very nervous. The stock price volatility and instability may increase dramatically. There are enough other positive feedback loops in the economy and stock pricing, and adding one more positive feedback loop can lead to even greater swings of stock prices.

However if the dilution method is used, I can go along with it. But unfortunately the expensing proposal on the table only calls for the Black-Scholes method. I am not against expensing, but I am against the Black-Scholes expensing approach.
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