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To: Elmer who wrote (66331)	12/27/2001 3:20:20 AM
From: Ali Chen	Respond to of 275872

EP, "Other people are insisting I sold the same ones I bought in Feb @$30 and I just lost $10. I think they're nuts." Hey Elmer, you also probably hold some other XYZ shares you bought, say, at $10? Why don't you assume that you sold those old $10 shares, and even made a PROFIT on your Feb $20 calls? What do you think? ;-)

To: Elmer who wrote (66331)	12/27/2001 5:06:41 PM
From: pgerassi	Respond to of 275872

Dear EP: It is simple to see how this works. The number of shares the company can have outstanding is capped at a certain number. At no time can the fully diluted shares ever exceed this cap. Since the definition is that all the outstanding options will be vested and will be exercised, all conversions will happen, etc. added to shares outstanding totals to fully diluted share count. Since the company cannot have the fully diluted shares exceed the cap, any time they grant an option, they must reduce shares outstanding till the fully diluted number goes below the cap before they grant the option. Thus the shares outstanding must be purchased before the options are granted in a quarter (Intel showed this tendency by adding to shares purchaseable before the buyback rate goes through the shares granted in the quarter after next (Q2)). Now when the options are exercised, the company gets paid to them the base price of the options for those shares. As Intel does it, this goes into other revenue. Other companies simply reduce the cost of shares purchased. This is the other end of this. Now if the option is not exercised, the number of shares required to be purchased is less for the next quarter. Now human nature gets in at this point. Most employees do not like stock options that are not exercisable. So the company puts the base price lower (reprices the shares). For outright stock grants, the base price is $0 a share and will always be exercised (only a fool does otherwise). Many high up people are given this form and have a performance target or some such restriction. For most successful ESOPs, the percentage that exercise is quite high, 80% or more IIRC. Lately, it looks that most do at Intel judging by the small percentage of fully diluted shares differences versus total shares bought back. Thus what you did not get is the different reason for the share buybacks is driven by worst case assumptions, not past stock options (only future possible stock options). The revenue gains only occur when the options are exercised and the liability reductions occur only when they are not exercised and lost (some options have a window for them to be exercised and the reductions only occur when this closes). Pete