Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: Lizzie Tudor who wrote (63384)	3/17/2003 10:08:14 PM
From: rkral	Respond to of 77400

OT ... Lizzie, re "Its hard to believe the FASB would say, "no expensing for a year" until black scholes or some other metric becomes viable. I don't think you can apply a risk formula to the first 6 mos of a publicly traded company." Option expensing would begin immediately. The accuracy of the the options model (Black-Scholes, binomial, other) would be decreased, however, because the estimate for price volatility would be based on similar companies with a price history. CORRECTION: In my previous post I said "The financial condition of the startup is not changed one red cent if options are expensed." ("if options are expensed" actually read "when it begins expensing options") The problem is that the impact of taxes may not be included in that statement. I need a good night's sleep before revisiting that. Maybe Huey or John S can clarify. Regards, Ron

To: Lizzie Tudor who wrote (63384)	3/18/2003 10:44:48 AM
From: Stock Farmer	Respond to of 77400

Lizzie, options on newly public companies are generally not available for the same reason that insiders are restricted in the buying and selling of shares. As a condition of underwriting the issue, investment banks demand control of the market in the newly issued securities. It's a lot harder to manipulate (oops, I mean "make") a market when someone else has more leverage than you do. Writers should be skittish during this time too. It's taking on a lot of risk to sell someone an option on a security someone else has ability to manipulate. You might end up finding the someone being the someone else and enjoying a most uncomfortable ride on the long end of a highly leveraged rope. As far as Black-Scholes not being valid for privately traded options, that is true. A modified formula exists for this purpose. But then again, think about it for a second. Estimating what we don't know is hardly new to the market. Being "right or wrong" is already a lot of guesswork. Do you think investment bankers calculate an IPO price based on some scientific formula? Does the market value a company based on the same principles? You'd never get these fantastic price runs or disappointing flops if that was the case. IPO is a realm in which WAG estimation rules. Struggling to get perfect precision on one aspect of the company's financial affairs is like engineering muffler clamps out of titanium alloy. Difficult and unnecessary. But stereotypical of the engineer-dabbling-in-finance who notices that metaphorical mufflers fall off a lot. John