Is this strategy useful? Anyone has used it? Calculation of Fair Value of Stock Options http://www.wikinvest.com/stock/Charlotte_Russe_Holding_(CHIC)/Calculation_Fair_Value_Stock_Options Calculation of Fair Value of Stock Options The Company estimates the fair value of stock options granted using the Black-Scholes option valuation model and a multiple option award approach. The expected life of options represents the period of time the options are expected to be outstanding and is based on historical trends and other subjective factors. The expected stock volatility is based on the average of historical volatility of the Company’s common stock and other subjective factors. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time awards are granted, and the expected dividend rate takes into account the absence of any historical payments and management’s intention to retain all earnings for future operations and expansion. The following table presents the weighted average assumptions used in the pricing model for stock options granted during the following periods: Stock Options: Years Ended September 27, 2008 September 29, 2007 September 30, 2006 Expected life (years) 2.5 4.7 3.9 Expected volatility 51 % 45 % 48 % Expected dividend yield 0 % 0 % 0 % Risk-free interest rate 3.2 % 4.7 % 4.6 % Fair value per option granted $ 5.17 $ 11.71 $ 9.03 Calculation of Fair Value of Stock Options STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%">The Company estimates the fair value of stock options granted using the Black-Scholes option valuation model and a multiple option award approach. The expected life of options represents the period of time the options are expected to be outstanding and is based on historical trends and other subjective factors. The expected stock volatility is based on the average of historical volatility of the Company’s common stock and other subjective factors. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time awards are granted, and the expected dividend rate takes into account the absence of any historical payments and management’s intention to retain all earnings for future operations and expansion. The following table presents the weighted average assumptions used in the pricing model for stock options granted during the following periods: Stock Options: Years Ended September 27, 2008 September 29, 2007 September 30, 2006 Expected life (years) 2.5 4.7 3.9 Expected volatility 51 % 45 % 48 % Expected dividend yield 0 % 0 % 0 % Risk-free interest rate 3.2 % 4.7 % 4.6 % Fair value per option granted $ 5.17 $ 11.71 $ 9.03 This excerpt taken from the CHIC 10-K filed Nov 28, 2007. Calculation of Fair Value of Stock Options The Company estimates the fair value of stock options granted using the Black-Scholes option valuation model and a multiple option award approach. The expected life of options represents the period of time the options are expected to be outstanding and is based on historical trends and other subjective factors. The expected stock volatility is based on the average of historical volatility of the Company’s common stock and other subjective factors. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time awards are granted, and the expected dividend rate takes into account the absence of any historical payments and management’s intention to retain all earnings for future operations and expansion. The following table presents the weighted average assumptions used in the pricing model for stock options granted during the following periods: Years Ended Stock Options: September 29, 2007 September 30, 2006 September 24, 2005 Expected life (years) 4.7 3.9 4.0 Expected volatility 45 % 48 % 47 % Expected dividend yield 0 % 0 % 0 % Risk-free interest rate 4.7 % 4.6 % 4.0 % Fair value per option granted $ 11.71 $ 9.03 $ 7.02 F-15
All they're doing is plugging in options from stock-based comp into Black-Scholes in order to come up with a value to put in their financial statements. This has nothing to do with the "fair value" of the options. The market gives you the "fair value." There is no strategy here.