December 11, 2009
As Market Volatility Goes Up, Up and Away: Use of Options May Go Down for the Count
– Frank Glassner, Veritas
With all of the wild gyrations in the stock market lately, we couldn’t help but wonder what this might mean for the future of stock options. Options have already experienced a decline in popularity in recent years thanks to the onerous expensing issues of FAS 123(R), as well as their lack of “line-of-sight” motivational impact on company operational goals, but if you throw into the works the wrenches of white-hot executive pay scrutiny, significantly declined capital markets, as well as significant increases in volatility and Black-Scholes values, you have a potent witch’s brew indeed.
Not being able to let this unique executive pay situation go untouched, Veritas ran some quick calculations of volatility for the Dow 30 stocks – read about these calculations in this article.