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

To: GVTucker who wrote (63622)	4/19/2003 3:01:29 PM
From: Lizzie Tudor	Read Replies (3) \| Respond to of 77400

actually, re-reading my post, you are correct. I meant Black Scholes was "nutty" when applied to employee stock options. I don't do much options trading, actually I am not much of a trader period but especially wrt options my trading record is practically nonexistant, except for occassionally selling calls.... still from what I can see Black Scholes is certainly appropriate for its current use in publicly traded options valuation models. However, trying to apply it to employee stock options is indeed nutty- I stand by my statement. First of all, the companies where the most extensive options exist as a % of outstanding shares are the new IPOs. Black Scholes doesn't work for those... oh well. More nuttyness when we try to igore the employee's continued employment as a requirement for employee stock options to have any worth... Black Scholes ignores the relationship.... this is like saying an insured credit card (one where you have to put up cash in an account in order to use the card, with the limit being the amt of "insurance" the issuing company has in the bank)- is the same as a real credit card. Finally the risk premium as applied to unvested options, counting that as an actual expense. Sheesh, you've got to be kidding! There has to be a better way, I suggest expensing the actual value of options at exercise... nobody can really argue with that... if the options expensing lobby doesn't back down from Black Scholes I suspect there is no reform at all. And a legal challenge would be fairly easy to defend I'll bet. Lizzie