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Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: Peter J Hudson who wrote (114678)	2/27/2002 7:48:36 PM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 152472

Pete, Even using the fair value method amortized over the vesting period the actual compensation cost is quite low. i am not so sure about this. what is the normal vesting period? 4 years? that is a shorter period than the duration of the options. keep in mind that employees may receive new options each year. also, i am not sure what is meant by "fair value", but i assume it is more than the intrinsic value, and i would call fair value the value determined by Black-Scholes. if you have familiarity with the prices of at-the-money LEAPs calls, then you know there can be a very high time value to options in excess of intrinsic value. to take the example of QCOM, the 2004 JAN 35 call (LLUAG), which currently has no intrinsic value, nevertheless has an ask price of 11.60. that works out to 34.55% of today's closing price of 33.57, and the option is out of the money. and that is for an option expiring in less than 2 years. obviously, if they had marketable options going out 10 years, the price would be higher yet. after all, the 2003 Jan35 call (VLMAG) has an ask of 7.60, going out just one year from 2003 (7.60) to 2004 (11.60) raises the option price some 52.6%. so my feeling is that if these costs were deducted against income, then the effect on income would not be small. if by some chance companies were forced to do this, there would be some interesting effects. first of all, high tech cos in the past decade have enjoyed a currency advantage compared to older cos because they could lure top talent with options. employees were drawn to cos with high betas (with the chance of explosive options upside), while low-beta old econ cos. had to pay up lots of cash (and sometimes even that didn't work--e.g., if a 120k/yr engineer really thinks he can make 1mil/yr at some tech firm thanks to an options package, even 300k/yr cash may not have lured him to the old econ co). whereas if options must be expensed, then the expense will have an outsized impact on high-beta cos. the reason is obvious: the options of high-beta stocks are expensive! (because price volatility is a component of the Black-Scholes pricing formula). high-beta stock options are much more expensive than those of low-beta stocks. however, maybe this development would actually benefit high tech, because cos. would be motivated to reduce their betas, and the best way they could do that would be to quit hyping their stocks and get down to business. the more i think about it, the more i believe a requirement to expense options would have tremendous beneficial effects to our economy in the long run.

To: Peter J Hudson who wrote (114678)	2/27/2002 8:24:53 PM
From: rkral	Respond to of 152472

I am aware of the appreciation aspect, and I agree completely with all the statements in your post. I intentionally avoided evaluating John's appreciation approach in my post to you. My dilemma: I publicly offered to debate - to hopefully show John where he is wrong. I also offered to do this publicly or via PM .. an offer I feel obligated to abide with, since John has indicated he would prefer PM. You wouldn't mind "hearing more about options evaluations" (paraphrased), and David E. Taylor would "be glad to add [his] two cents worth". I am now .. already .. struggling with how to handle this. The option evaluation issue has been around for a quite a while. Please give me a few days to ease into this and work out how to best satisfy everybody's wishes .. including my own. Regards, Ron