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Technology Stocks : Intel Corporation (INTC)
INTC 48.32-0.8%3:59 PM EST
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To: williamlp who wrote (177861)5/8/2004 9:59:44 PM
From: Elmer Phud  Read Replies (1) of 186894
 
william -

If I wrote an option contract and kept it myself, which of course would be pretty silly, I could represent the two pieces on my balance sheet: The value of the option I hold, and the obligation to pay, which net to zero.

If we assume you wrote that option at fair market value then the value of the option is denominated in dollars but the obligation to deliver is denominated in time. Your shares will not exceed their present fair market value over that time so you do not stand to suffer any loss other than whatever decline the market may take over the life of the option. Neither do you stand to gain but that is considered upside potential or potentially "opportunity lost". So, what was the monetary value of upside potential because that is the only loss suffered here? How is it calculated and where was it listed on the balance sheet? Others have suggested that it is factored into the share price but if that is true then the same shares Intel holds to back their options obligations have just dropped in value by the same amount that the options receiver has gained by receiving the grant. But the option holder will have to pay the original fair market value if he wishes to exercise the option, a price that is above the now devalued shares. It's a wash! The option can not be exercised without making Intel whole. There is and can be no loss.
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