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Strategies & Market Trends : Employee Stock Options - NQSOs & ISOs
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To: R2O who wrote (748)7/10/2005 7:01:52 PM
From: VLD3 of 786
 
May be off topic, but I think that the discussion on expirationless options also in this forum might be relevant here. For a publicly traded company:

1. If a company were to issue expirationless options to the employee at out-of-the-money strikes, the company could post the underlying stock from treasury shares so margin cost is zero.

2. If they are out of the money, the cost to the company is minimal (and could be financed with zero tax liability by selling puts).

3. The expirationless options are of greater value to the employee, since he/she captures not just intrinsic value, but time value as well (they are more valuable sold than exercised).

4. The ability to resell the position into a market means that in all likelihood, the options would never be exercised (until the strike price is viewed as or is effectively zero from splits or inflation). This means that the dilution is delayed.

5. The advantage of issuing a marketable option eliminates the probability of employer default.

6. A large company could literally finance the employee incentives, compensation and administrative costs (all overhead) by selling expirationless options into the market with treasury stock used to hedge. This turns what would be a low (or zero) dividend asset on their books into a significant dividend (some have said as much as 55% of the stock price as an expirationless call price struck at-the-money).

Thoughts?
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