Anavex Life Sciences Corp (AVXL)

[rocalinda]

“No, options like this are not worthless. An outstanding option has intrinsic value separate from any strike price, ITM or OTM. They have a very real value that can be calculated using Black-Scholes and an adjustment term for the contingency element.

If you don't think this is true, try to find some free options and, hey, grab some for your friends. And check our Q3 10Q, you'll see a charge for the "worthless" options.”

Not what I am taking about, underwater options are worthless to the option holder.

exercise them?
Underwater stock options have an exercise price which is greater than the market price of the underlying stock. For example, you may have options with an exercise price of $10 a share while the stock is trading at $8 a share.

For obvious reasons, you do not want to exercise underwater stock options, as you would being paying more for the shares than their current market price, and the exercise itself would not generate any tax loss that you could apply against other income.

Only in extremely rare situations might you purchase stock at a price that is greater than its fair market value.

Example: Your company is privately held, so you can't buy its stock in the open market, but you believe the purchase/exercise price will turn out to be much lower than the stock price will eventually be if the company is acquired or goes public. That is a big risk.