I wrote:
"It's not really dilution of the stock, however, since there's no new stock being issued."
Jayson:
If no new stock is issued,
raghu points out that new stock is issued, so I was wrong about that.
I imagine then, that there is no guarantee that when the time comes and the holder decides to sell his/her options that there will necessarily be enough willing buyers? Or is the company that issues stock options responsible for ensuring that all those options (when exercised) will be purchased at the market price? In other words, is the option holder guaranteed a future sale, or are they at the markets whim?
in the stock market there are a bunch of people called "specialists" whose job it is to guarantee the existence of a market of their stocks. That is, if I want to exercise my option and sell the stock, there will be someone there to buy it if the "normal" market doesn't serve the purpose. (This institution is changing, but I don't know how it's changing and when the changes kick in.) BTW, awhile back there was a big debate about how corps should be required to treat stock options they issue as costs. There are all sorts of technical complications. One solution would be to ignore the issue of costing options and to instead require that each corp issue stocks to correspond to any new stock options they give, where the usual restrictions on new stock issuance apply. -- Jim Devine / "You need a busload of faith to get by." -- Lou Reed.
