To: Stock Farmer who wrote (118988 ) 5/20/2002 3:41:25 PM From: rkral Read Replies (1) | Respond to OT .. I'm OK with this stock option post until ..."Same with stock options and the company." << IMO, that's an unproven premise which may be false."There's a promise (by somebody) to employees that they will get some booty if the stock price goes up." << Agreed."So somebody has a debt to employees." << This is not a valid conclusion to the preceding premises. As you said, the employees make money if the stock price goes up. This is an option, not a debt."We can compute this dollar value by any number of ways. One is the expected value given by the dubiously applicable Black Scholes equation. Or the expected value given by the more dubiously applicable Shannon Computation." << Looks like apples and oranges to me. You are mixing the cost of the grant with the cost of the exercise. Two different events. Two different dates.Black-Scholes option pricing model is useless here *.does use a Black-Scholes variant *. The "fair value method" does not try to predict the future value of the option, as you have proposed in other posts."I maintain that the whoeveritises are the shareholders. Not only by process of elimination (not employees, not company, not IRS, not customer, not supplier... ), but by precise economic rigor of funds flow." << Another unsupported premise which may be false. Your elimination list ends with " ... " indicating the list may be incomplete. One cannot argue "it's not list item A, nor item C, nor item D ... therefore, it must be item B" unless items A, B, C, and D are absolutely the only items in the list.a missing item in the list is the stock market *. After all, if the market did not bid up the price of the company stock, the employee with the stock option would have an option with no value. How then can the market not be a possible source for the funds which the employee receives when exercising an ITM option?precise economic rigor of funds flow " .. I agree, but how can one be precise about funds flow when one hasn't conclusively identified the source of the funds?"If anybody has cogent arguments to refute either of these two simple claims, please feel free to advance them." << There you have at least one.
