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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Enigma who wrote (6125)	5/19/2002 2:27:51 AM
From: macavity	Read Replies (2) \| Respond to of 33421

Option Price. Black-Scholes using a historical volatility proxy. Say 1yr Volatility. In Europe, France for sure, ESOPs (employee share ownership programs ) are hedged by investment banks. The banks obviously price them. -macavity

To: Enigma who wrote (6125)	5/19/2002 10:13:11 PM
From: Hawkmoon	Read Replies (1) \| Respond to of 33421

Much of it has to do with the fact that companies like MSFT have been deducting their Options incentive programs as wages, even though they haven't been charging these "wages" paid against earnings. According to Bill Parish, MSFT didn't pay a penny in income tax on $15 billion in net income, yet claimed $22 Billion in deductions based upon the options they issued as prepaid wages: billparish.com But now MSFT will have charge their options incentive program against earnings and that will affect their P/E ratio and make the stock even less attractive in valuation. Had MSFT been forced to charge off those $22 billion in options against earnings over that two year period ending June, 2001, it would have drastically impacted their earnings during that period. Thus, MSFT, and other companies that have heavily relied upon aggressive options benefit programs will lose the benefit of hosting such programs to subsidize wages. And without such subsidization, they will be required to pay higher salaries, or face losing talent. And those workers holding any such, as yet unexcercised, options which still happen to be still worth something (the strike price being below current market value of the shares) will see the hand-writing on the wall and cash out while they still can, the tax consequences be damned. Thus, with no major new product lines for MSFT to drive a sustainable growth, no ability to profitably attract and retain qualified employees, and a sudden elevation of their P/E ratio due to the new accounting standards, their is an ill wind blowing MSFT's way... Gates has reduced his holdings to some 11% of the stock, which means the public (pension funds and institutions) are holding those shares. I don't see Gates venturing out there to re-purchase MSFT shares anytime soon. Hawk