To: The Vast Right Wing
In that case, why not also have a corporation treat an unused credit line as an expense? Options amount to much the same thing.
To: Frumious Bandersnatch
I don't know if I buy that. I mean a person with a credit line of $2000 (but no balance) is in better shape than someone who is expecting a property tax bill for around $2,000 in the mail (but doesn't know the exact amount).
To: Frumious Bandersnatch
I think the point is that options are a benefit to the company in the form of savings on labor. This is more like a used line of credit, if the stock price rises and the options are exercised by the employees. Or look at it as an unsuccessful attempt at a short sale of stock, albeit with payroll and corporate tax benefits that could not be realized by the typical Wall Street trader out to make a quick buck by shorting stock.
Inversely, if the options turn out to be worthless, it's like a successful short sale, but the tax benefits would still have been realized during the year that the options were issued. Issue enough stock this way, and the likelihood is greater that the options will end up being worthless.
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