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

To: Stock Farmer who wrote (118989)	5/20/2002 3:44:39 AM
From: Peter J Hudson	Read Replies (2) \| Respond to of 152472

John, Your method of calculating cost to shareholders of employee stock options assumes that all benefit to the option holder is a cost to shareholders. That is a false assumption. <<Options have a value, known in the future when they are exercised to be precisely the difference between what the security is worth and the strike price of the option. Whatever this turns out to be is a benefit to whoever holds the option, and a cost to whoever underwites the option.>> For example, if I sell OTM covered calls with a strike of 35 and receive a $3 premium, for this example assume my cost basis for the shares is $30. The stock price increases to 40 before option expiration, the shares are called away and sold by the option holder. The writer receives $38 (35+3) or $8 gain. The option buyer pays $38 in premium + strike and sells at $40 for a $2 gain. Where is the cost? Who lost? <<For example, if all 82 Million outstanding well in the money stock options with average strike price of $6 are exercised at a market price of $32 then a benefit of 2.1 B$ will flow to employees. Do you dispute this? Kinda hard. If you do not dispute it, then you might want to figure out where this 2.1 B$ is going to come from. The equity fairy?>> It come from an increase in market valuation, justified or not, but it is not a cost to shareholders. An increase in valuation does not require an associated cost. Please demonstrate how the shareholders lose the 2.1 B