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Technology Stocks : AOL Traders -- Ignore unavailable to you. Want to Upgrade?

To: IKM who wrote (48)	11/13/1997 8:01:00 PM
From: Steve Robinett	Read Replies (1) \| Respond to of 94

IKM, I just plugged the AOL conversion feature into my option model. Assuming 6% carry, 104 strike and a stock price of 73 (about the price when the debenture was issued), I get a value for the call of $28.75 with 60% volitility and about $16.50 with 40% volitility. That's about what the conversion feature's worth at issue. Where does "Bearded One" get $11? BTW, it's also possible to compare the 4% bond feature with straight corporate debt, consider the remainder as the value of the convertible feature and work backward to the volitility implied by the bond. IMO, people are overworking the negative impact of this debenture deal. The potential equity dilution was priced in when it was announced. The real question here is overall value of AOL's franchise. I figure the current price reflects about $40 in value and, at today's close of $68-3/4, $28-3/4 in misguided religious faith. As long as AOL has a shot at finding a way to make a living beyond, it will trade at a premium to value. Best, Steve