From top to bottom
Tech companies extended grants from the executive suite to the mailroom, typically offering thousands of options to midlevel employees and more than 1 million to senior executives. Employees of Cisco Systems earned more than $7 billion exercising stock options in fiscal 2000.
The media fueled America's fascination with options. A front-page article in The Wall Street Journal explained how Netscape Communications co-founder James Clark's secretary, D'Anne Schjerning, reaped $1.2 million in options while living in a San Jose trailer park. Other newspapers reported on a decision by Cisco CEO John Chambers to grant 1,300 college summer interns options for 500 shares if they returned after graduation.
The dream that even secretaries and interns could get rich on stock options died last spring, when the stock market began a slide that largely still continues. At the close of trading Tuesday, the Nasdaq was down 56 percent from its March 10 peak.
According to the preliminary results of a survey conducted in November by iQuantic, 50 percent of the option grants at 85 percent of companies are worthless because the stocks are trading below below their strike price, typically the closing share price on the day the options were issued. With the Nasdaq in a free fall, most options granted since last year are deeply underwater.
To shore up flagging morale, Microsoft granted a total of 70 million more options to its 34,000 employees in April with a strike price of $66.63. But with the stock trading around $60, even the new options are underwater.
"Stock options remain a great long-term opportunity," Microsoft CEO Steve Ballmer wrote in a December memo to managers, but "reality has set in; here and industrywide."
That reality includes macroeconomic trends that allowed the bubble to swell unabated in the first place.
Martin Fridson, director of global high-yield strategy at Merrill Lynch, who holds an undergraduate history degree from Harvard University, says technological breakthroughs "help to stir the pot" of a market frenzy, but an abundance of low-cost capital is the real catalyst.
For example, when the French government began accelerating currency printing presses and the national bank dropped interest rates as low as 2 percent in the late 1600s and early 1700s, England and France entered a period of economic exuberance now known as the "South Sea Bubble." The idea, which seemed reasonable at the time, was that new, more efficient trade routes between the South Pacific and South America would create a commercial revolution for seafaring nations.
Eager to capitalise on the boom, financiers reaped huge sums from ventures that seem absurd in hindsight: selling hair, developing a funeral home chain and importing walnut trees from Virginia. As interest rates dipped and more money was printed, developers even sold investors plans for a mysterious "perpetual-motion wheel"- an impossible, laughable device that uses less energy than it consumes in perpetuity.
Investors became so crazed- and lost so much money when the bubble burst- that the British Lords Justices Council in 1720 abolished all companies trading in hair, funeral homes, walnut trees or motion wheels.
