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

To: hueyone who wrote (224)	8/19/2002 8:16:44 AM
From: rkral	Read Replies (1) \| Respond to of 786

Huey, just a clarification of "intrinsic value method" The intrinsic value method, at least as described in the Business Week article ... As you most likely know, the "intrinsic value *method*" described by Business Week is not the same as that described by FAS 123. There is no "truing up" to a current intrinsic value in the FAS 123 method. The definition of "intrinsic value", the market price minus the exercise price, is the same. (Intrinsic value cannot be negative.) IMHO, Business Week should not have chosen an accounting term already defined by the FASB. BTW, the Business Week argument for their method is flawed IMO. It results in zero expenses for options that expire .. totally ignoring the fact that options have economic on the grant date. Ron

To: hueyone who wrote (224)	8/23/2002 11:20:57 AM
From: Ted The Technician	Read Replies (3) \| Respond to of 786

I like the intrinsic value method in that it reflects more of the changing market value of the options at the time the financials are reported. I don't mind that it would cause the earnings to be harder to predict - companies announce "one-time charges" all the time. I've been deceived too many times by inflated book value numbers that have not been adjusted for worthless assets like goodwill, investments, and inventory. One aspect of the intrinsic value method that I don't agree with is its method of valuing the option. I don't agree that only the intrinsic value of the option should be expensed - the option premium (that value that exceeds the option's intrinsic value) should also be expensed. Out-of-the money options have value especially when the expiration date is years in the future. Accounting should use the BS model ( or any other standard model ) to estimate the option premium when the option is not freely traded on the market; however, accounting should use the market to determine the option value as the option (or similar options) becomes freely traded on the market as the option approaches the expiration date.