You are trying to value your options using BSM Mode
You are trying to value your options using BSM Model. What values would
you assign, using 3-year and 10-year as the time to maturity?
2. Suppose that, in three years, the company’s stock is trading at $60. At that
time, should you keep the options or exercise them immediately? What are
some important determinants in making such a decision?
3. Your options, like most employee stock options, are not transferable or
tradable. Does this have a significant effect on the value of the options?
4. Why do you suppose employee stock options usually have a vesting
provision? Why must they be exercised shortly after you depart the
company even after they vest?
5. A controversial practice with employee stock options is repricing. What
happens is that a company experiences a stock price decrease, which
leaves employee stock options far out of the money or “underwater.” In
such cases, many companies have “repriced” or “restruck” the options,
meaning that the company leaves the original terms of the option intact, but
lowers the strike price. Proponents of repricing argue that because the
option is very unlikely to end in the money because of the stock price
decline, the motivational force is lost. Opponents argue that repricing is in
essence a reward for failure. How do you evaluate this argument? How
does the possibility of repricing affect the value of an employee stock
option at the time it is granted?
6. As we have seen much of the volatility in a company’s stock price is due to
systematic or marketwide risks. Such risks are beyond the control of a
company and its employees. What are the implications for employee stock
options? In light of your answer, can you recommend an improvement over
traditional employee stock options?
This may drive me exercising the options immediately. Financial needs are recurrent hence need to. The following are some of the factors which may lead to early exercise;
High interest debts requiring immediate pay. Exercised funds may be the solution for this (Anspach, 2018)……………………….