Can someone explain exactly how employee stock options operate? 1a) In the market, the owner of a stock can "write" a call option on stock he owns, meaning a buyer pays the stock owner a market price for the option. The option buyer is paying for the rights to the future gains from the stocks, the stock owner giving up rights to the gains.
1b) When a firm pays an employee with stock options, A) does the firm in effect write options on stocks held by the firm, or B) does the firm create options by fiat, based on no shares? If B, the employee option owner gains at whose expense? 1c) The true cost to the firm seems to be the market price of the option. Is this what accountants and reformers say would be charged to expenses? 2) When the option is exercised, the option owner pays the exercise price, which I presume is usually very low. a) Does the firm typically issue new shares of stock for this sale, or b) does the firm sell shares that it buys or previously owned? If the firm issues new shares or buys shares, it seems this is a second expense, since issued shares dilute the value of other shares, and bought shares are an explicit cost. Are newly issued shares for options exercised recorded as an expense to the shareholders? Fred Foldvary ===== [EMAIL PROTECTED] __________________________________________________ Do You Yahoo!? Yahoo! Autos - Get free new car price quotes http://autos.yahoo.com
