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Strategies & Market Trends : Stock Attack II - A Complete Analysis -- Ignore unavailable to you. Want to Upgrade?

To: TimbaBear who wrote (39002)	8/15/2002 6:28:05 AM
From: sandeep	Respond to of 52237

There are other reasons why the behavior of an exchange traded option holder versus ESO holder may be different - 1) Exchange traded options held for a long time have long term capital gains tax rate (20%). The gains on ESOs (if worth having them) is typically 39%. 2) Most ESO holders think of ESOs as "free money" since there is no direct assumed risk as in exchange traded options. 3) There is emotional attachment to the company. Do you think that Black-Scholes model takes into account this difference in the psychology of the ESO holder? I think not.

To: TimbaBear who wrote (39002)	8/15/2002 10:15:26 AM
From: Casaubon	Read Replies (1) \| Respond to of 52237

Now you trust the rule makers... European style options have significant restrictions relative to fully transferable US style. They are still valued similarly. he existing models do not necessarily provide a reliable single measure of the fair value of employee stock options. Also, this statement speaks to the inadequacies of the models. This is well known and accepted because, it's "good enough". Originally, options contracts traded under much different terms. They had exact prices, instead of intervals of strike prices, which made them extremely illiquid. They evolved to become much more useful risk management tools, with the advent of fixed interval/ fixed time based contracts with more generic characteristics. The no reason why ISO's can't and won't evolve similarly. And, there's no reason why pricing parameters won't continue to arrive, which is why I stated Black-Scholes like models. We live in a slightly imperfect world where exactness is not always the best solution; sometimes it isn't even a choice. I know a guy who designed a beautiful house with very precise parameters, right down to the placement and number of nails. He can't find a contractor to build it to spec. PS I rescind my harsh attitude since the exchange has taken on a more respectful discourse.