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Strategies & Market Trends : Employee Stock Options - NQSOs & ISOs -- Ignore unavailable to you. Want to Upgrade?

To: rkral who wrote (82)	6/20/2002 9:14:00 AM
From: hueyone	Read Replies (1) \| Respond to of 786

The accounting professor and I still agree with JS: From the professor: However, even without using cash to repurchase shares there is a foregone cash inflow for the excess of the market price of the stock over the exercise price on the date of exercise. In fact, it is roughly the present value of this excess that a valuation model such as the Black-Scholes model attempts to estimate when assigning a value to stock options on the date of grant. online.wsj.com Best, Huey

To: rkral who wrote (82)	6/20/2002 10:02:45 AM
From: Stock Farmer	Read Replies (1) \| Respond to of 786

JUST PLAYING A GAME WITH THE FOLLOWING Let me know when you are serious. It's annoying enough when you monkey around with semantics in a relatively serious discussion. You neither explicitly nor implicitly said anything about time value (premium). Had you considered, in connection with "promise value", that option value = time value + intrinsic value, I believe you would have realized that OV can be the sum of two terms .. and you would have also realized that "promise value" = time value at option grant. It appears to me that you were not aware of either. Hence, my proof. LOL... Ron, you are a hoot. Had I considered that the sun would rise in the morning I might also have said that. But I did not. Because it is irrelevant. You would be dangerously treading out onto the thin limb of inference to assume therefore that I am unaware of the sun. In the context of what an option COSTS SHAREHOLDERS, it is irrelevant whether you divide up an expected $5 (or $X) on exercise into two components called "intrinsic value" and "time premium". Although I know both exist. Because on the day I exercise, the option will be worth only as much as I put in my pocket. So when I look forward to exercising an option and putting an amount (say $5.00) in my pocket, then I don't give a rats ass what the current intrinsic value is, nor by extension the time premium. It's satisfactory to say I expect to get $5.00. And I know that if I expect to get $5.00 (by whatever computation gave me that expectation, whether black-scholes or leaves of black tea, they differ in the mathematical precision of derivation but not necessarily in accuracy), then by extension I expect that $5.00 to be the difference between what I pay for the stock and what I can sell it for. Which would kind of be exactly equal to the difference between strike and market in the future. Now you can disagree with this all you like. But if you want something irrelevant and complex to think about, try figuring out whether or not shareholders gain anything if an option expires worthless. Or how about this. When an option is exercised the holder puts intrinsic value in his pocket only and leaves time premium on the table. Is this loss of value a benefit to shareholders? If a tree falls in a forest, does anybody care? John