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

To: R2O who wrote (692)	8/2/2004 5:03:28 PM
From: rkral	Read Replies (2) \| Respond to of 786

R2O, neither an 'office with a great view', nor an 'MVP award', nor a 'plaque for distinguished service, nor a 'close parking space' has a reasonable probability of being converted to cash ... EVER. They are horrible analogies to a stock option. re "Stock options, beyond dilution, have NO COST." The problem is balance sheet dilution never makes it to the income statement ... unless options are expensed. re "In fact, the company gets paid." I actually agree with that. They are the call writer ... and it's the call writer that makes money in the long run. The problem here is that cash from a financing activity -- selling options -- is treated as an operating activity by including it in net income. re "Of course, if the grantor is going to 'expense' the grant, then why not simply buy calls for the exersize date/grant price? One expense is the same as another, isn't it?" Buying calls and (presumably) giving them to the employees would involve a cash outlay. No CFO in his/her right mind would do that when option agreements can be written without a cash outlay. That argument doesn't even pass the laugh test. re "To get more capital, perhaps the company could sell calls instead of selling stock into a public offering." Some companies do, and they're called warrants. But why sell calls to the public when you're able to sell them to a captive audience .. your employees? re "Since the company makes the stuff (stock), all calls are/should be covered, right?" Try putting some numbers to that argument. Do you think stockholders' equity ends up the same when stock repurchases are made at the exercise date instead of at grant? Ron BTW, just what was your answer to the question ... "If options aren't compensation, what are they"? A one word answer would be appreciated.