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mikep
Joined: 22 Apr 2009
Posts: 544
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 Posted: Wed Sep 30, 2009 10:47 pm Post subject: Black-Scholes Stock Option calculator |
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Does anyone have a spreadsheet or online calculator for employee stock options value?
Company X offering an exchange for new options that are underwater,
with vesting schedule reset, and I'd like to see if I'm getting
shortchanged or not on the deal. Basically exchange X options that are
worthless and expire soon for like X/9 new options with vesting clock
reset. The Black/Scholes as I know it doesn't take into account option
vesting but the company says that they "take it into account". |
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jeremy
Joined: 21 Feb 2007
Posts: 40
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Posted: Thu Oct 01, 2009 1:28 am Post subject: |
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Seems
like a can't lose. If you have underwater options expiring soon then
they are essentially worthless.... and you are being offered something
of value in exchange. |
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Valuethinker
Joined: 11 May 2007
Posts: 10659
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Posted: Thu Oct 01, 2009 7:16 am Post subject: Re: Black-Scholes Stock Option calculator |
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mikep wrote: |
Does anyone have a spreadsheet or online calculator for employee stock options value?
Company X offering an exchange for new options that are underwater,
with vesting schedule reset, and I'd like to see if I'm getting
shortchanged or not on the deal. Basically exchange X options that are
worthless and expire soon for like X/9 new options with vesting clock
reset. The Black/Scholes as I know it doesn't take into account option
vesting but the company says that they "take it into account". |
My gut is that you don't have much choice in these situations.
If the exchange ratio is X/9 it is likely you are so far under water
that even if they were ripping you off (like say by half) that would
still be money in the bank to you, vs. money worth nothing (original
options so far out of the money). |
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Wagnerjb
Joined: 19 Feb 2007
Posts: 2758
Location: Houston, Texas
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Posted: Thu Oct 01, 2009 8:47 am Post subject: |
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I
believe Black-Scholes will take into account the different expiration
dates. However, I suspect it won't factor the vesting period. It will
assume you own (and could exercise) the options from today until
expiration.
I have company stock options, although they are not underwater
today. If I was offered the alternative to exchange soon-expiring
underwater options for options with a longer period to expiration (even
at 9-1) I would jump at the chance.
How soon until your options expire otherwise? How long will the new
vesting period be? In my experience, the options have 10 years until
expiration, and they typically vest in 2-4 years.
Best wishes.
_________________
Andy |
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Chuck
Joined: 21 May 2009
Posts: 180
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Posted: Thu Oct 01, 2009 10:00 am Post subject: |
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Black-Scholes will price it for exercise at expiry (European option). So the vesting date is N/A.
However, I agree that you'd only do this to confirm the naive
analysis. That what you have is worthless, and you're being offered
something of value. |
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mikep
Joined: 22 Apr 2009
Posts: 544
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Posted: Thu Oct 01, 2009 12:00 pm Post subject: |
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The
big ones are expiring in 2 years with the strike price at >1.66x of
today's stock price. So to get any value from these, stock would have
to grow >30% per year on average over 2 years. Looks like a slim
chance, especially since the stock has rocketed up 60% from the 52 week
low in March already.
These options would be cancelled and ratio is actually X/9.2 new
options, at today's price, expiring in 7 years, vesting 25% each year
for 4 years.
Other options have similar values but trend would be the same.
I think I will switch the severe underwater options (>1.5x
today's price), but where the price is much closer within reach of
today's price I will probably hang on those and split the difference.
Thanks all for your comments. |
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Wagnerjb
Joined: 19 Feb 2007
Posts: 2758
Location: Houston, Texas
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Posted: Thu Oct 01, 2009 1:51 pm Post subject: |
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Mike: here is how I would look at your situation, using the larger block of options as an example.
Say you have 100 options, and today's stock price is $100. From
your statement, it appears that these options have a strike price of
$165, so they will require two consecutive years of 30% gains to reach
break-even. These expire in two years.
Your alternative is to take 11 options, with a strike price of $165, which expire in 7 years.
If the stock price declines over the next two years, the new
options win. Your old options expire worthless, and the new options
still have 5 years of life left....to possibly turn around.
If the stock price is flat over the next two years, the new options
win. Your old options expire worthless, and the new options still have
5 years of life left....to possibly turn around.
If the stock price rises 10% each year, your new options win. Your
old options expire worthless and you can exercise the new options at
the $120 stock price and have a gain of $220.
If the stock price rises 20% each year, your new options win. Your
old options expire worthless and you can exercise the new options at
the $140 stock price and have a gain of $440.
If the stock price rises 30% each year, your new options win. Your
old options expire worthless and you can exercise the new options at
the $165 stock price and have a gain of $715.
As the stock price gains exceed 66% over the two year period, the
old options pull ahead of the new options, possibly by a huge amount.
For example, if the stock price doubles to $200 in two years, the old
options pay off at $3500, while the new options would only be worth
$1100.
I suspect the first few examples - little or moderate price appreciation - are much more likely than the |
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