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Old 12-04-2012, 03:42 PM   #139
chiefzilla1501 chiefzilla1501 is offline
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Join Date: Aug 2008
Casino cash: $128819
Quote:
Originally Posted by HonestChieffan View Post
Options in the USA chart are valued at issue price. Thus it does not reflect true value as the share price can drop and the option has no value or a negative value.

There is no cost to the company for issuing an option until it is exercised. Thus there is no opportunity cost.

You are absolutely wrong on the impact on the decision making by issuing options. In the case I referenced, three years had to pass before the option was exercise able. That creates agape between short and longer term decisions. And they can go ten years so if the company does have a downturn, it may be 10 years before they have value.

I think your position would have merit if you had a specific that you could reference. Just railing against the man is not getting it done.
And just to clarify...

If you earn dollars at $7M, those dollars are valued at $7M.

If you earn stock at $7M, that stock is valued as $7M in equity. It is essentially valued as $7M. If you tank the company and the stock is then valued at $1M, guess what... your equity is now valued at $1M. You just lost $6M.

If you earn a stock option at $7M... that stock is valued at $0. You usually do not lose money on an option. You can only gain money on it. If your stock is below strike price... if this were a stock, you'd lose money every time the stock price dropped. In an option, you don't lose anything even if you send the stock to the cellar. Hence, when executives get huge payouts for big success but are capped in how much they lose if they business tanks... what would you do? Of course you're going to to gamble. Go big or go home.
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