Alien, the effect is not all that easy to figure out. First, you get dilution of the existing shareholders, second you get a tax credit, third, there is a cash influx equal to the exercise price of the option, and fourth, the options are often repriced if and when the company stock plunges. On top of that, many of the costs are hidden by the use of more traditional options devices (such as selling puts) to hedge. This works well in a bull market, but what happens if we enter a lengthy down period? As I said before, this is a terrible system designed to rape investors, but most are too naive to ever figure out what is going on.
Warren Buffet is one of the most honest capitalists around. When he takes over a company he ends stock option perquisites. I wish the SEC would mandate a better accounting for these onerous devices.
TTFN,
CTC |
