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To: Richard Forsythe who wrote (138111)	7/30/1999 10:07:00 AM
From: GVTucker	Read Replies (1) \| Respond to of 176388

Richard, RE: I disagree that B/S determines the cost of an option to the company issuing it. It does determine the cost for an independent to write the option, but a company has the luxury of issuing stock to cover the option. The company's option cost is lower than a market-maker's cost -- the cost is dilution. If a company issues stock to fulfill an option obligation, that company has an opportunity cost. Those shares could have been issued to the public at the prevailing market price. Thus, the economic cost to the company is the same as the economic cost to an independent. I'm with Chuzzlewit on this one.

To: Richard Forsythe who wrote (138111)	7/30/1999 10:50:00 AM
From: Michael G. Potter	Respond to of 176388

What the dilution does not properly show (IMHO) is the true compensation cost. Options become part of the overall compensation and lower salaries and wages are paid. This means that salaries and wages expense is being significantly understated. We have been in a major bull market for the past few years, but if the market does not rise, then more cash will have to be paid out. Microsoft recently raised its salaries because their stock price is not rising as fast as it should be. The B/S model does work even if a company is issuing the shares. It is valueing the compensation that employees are given in the form of options. Michael