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Biotech / Medical : Sepracor-Looks very promising -- Ignore unavailable to you. Want to Upgrade?

To: rkral who wrote (6051)	6/20/2002 5:33:48 PM
From: Robohogs	Respond to of 10280

There are extra conditions on an employee option that are not on a publicly traded option: + vesting periods (usually 1-5 years) + maintenance of employment (most employees do not stay at a job for 10 yrs) + other factors anyone? Volatility measures for longer dated instruments never match short term vols even averaged out over many years just because longer term the ups and downs smooth out short term bumps. Anything over 30-50% is just not sustainable over longer periods of time (yeah it may be 80% vol while running from 10 to 80 and then running from 80 to 10, but what does this say about longer term vol?). My 2 cents. Jon

To: rkral who wrote (6051)	6/20/2002 5:49:10 PM
From: Biomaven	Read Replies (1) \| Respond to of 10280

Ron, 1. Volatility: Yes indeed, the current estimates rely heavily on historical volatility. However, studies have shown that historical volatility is not very predictive of future volatility. In fact future volatility is just as hard to predict as future stock prices. (There are some companies with very stable volatilities but these are in the minority and tend not to be big users of options anyhow). 2. Most employee options have a ten year life. However, if the employee terminates the term immediately gets reduced. Further, because the options are not freely transferable, people exercise them much before they expire (something you would virtually never do in a tradeable option). The net result is that employee options are around for much less than their statutory life before they get exercised or cancelled. (Four years or less is typical.) However, it is impossible to predict at grant date what their true life will be - it depends on employee turnover rates and the stock price. If you plug the historical volatilities for most biotech or high tech companies together with a long life into Black-Scholes you come up with ridiculous numbers - values for the option of something like 90% of the stock price. Just ask any employee whether they'd prefer an option to purchase 100 shares or to be given 90 shares outright (with the same vesting schedule). Peter