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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Chuzzlewit who wrote (71107)	11/29/1999 2:17:00 PM
From: starhawke	Read Replies (2) \| Respond to of 132070

"I can easily calculate the theoretical value of the option using the B/S model." Theories should work well most of the time. But not all of the time, that's why they are not referred to as laws. <g> And when the 99.9% certainty gets jack-slapped by the .1% happenstance? As with LTCM and others that thought they had discovered the financial Holy Grail? The land of theory would be a nice place to live if one weren't required to dodge large falling turds from the resident flying pigs.

To: Chuzzlewit who wrote (71107)	11/29/1999 2:28:00 PM
From: Don Lloyd	Read Replies (1) \| Respond to of 132070

CTC - [[...I disagree entirely. If I write a call I will receive cash compensation for the option. I can easily calculate the theoretical value of the option using the B/S model. If a corporation substitutes call options (the value of which is easily quantifiable) for a portion of salary, why should it make an artificial distinction between the two?...]] The problem is much deeper than that. An employee stock option is roughly equivalent to actual stock plus a free put option plus deferred payment. It would likely surprise you for me to claim that simply giving the employee deferred payment stock would have the same characteristic of being essentially cost free to the company as a whole, as opposed to shareholders. Consider the following analogy - Assume a company which is located next to a ski resort. To attract employees at reduced salary, each employee is provided with free off-peak ski passes to the resort. The potential employees who prefer the ability to ski on lunch breaks to the extra salary will self select themselves and become employees. The free passes are provided to the company without charge by the resort owner as he knows that the employees will patronize his dining room and vending machines. By the voluntary pursuit of this three way exchange, it is clear that all three parties consider themselves benefited by the arrangement. Is there any justification at all for a phantom expense to be entered on the company reports? Must companies with natural advantages fall prey to some kind of a Handicapper General to equalize their advantages? Yet those free passes would have significant cash value to non-employees, if they were to be traded on a market. If a company goes out tomorrow and prints new stock certificates and gives 100 shares of company stock to each employee, the cost incurred for the company as a whole is merely the printing cost for the certificates. It is the shareholders who suffer the consequences, which are easily and straightforwardly enumerated by the amount of ownership dilution. Price is not value is not cost. Regards, Don