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+Risk and the Intelligent Option Investor   • 267
+Let’s assume that the present market value of the shares is $16 per 
+share. This share price assumes a growth in FCFO of 8 percent per year for 
+the next 5 years and 5 percent per year in perpetuity after that—roughly  
+equal to what we consider our most likely operational performance 
+scenario. We see the possibility of faster growth but realize that this faster 
+growth is unlikely—the valuation layer associated with this faster growth 
+is the $18 to $20 level. We also see the possibility of a slowdown, and the 
+valuation layer associated with this worst-case growth rate is the $11 to 
+$13 level.
+Now let’s assume that because of some market shock, the price of the 
+shares falls to the $10 range. At the same time, let’s assume that the likely 
+economic scenario, even after the stock price fall, is still the same as before—
+most likely around $16 per share; the best case is $20 per share, and the worst 
+case is $11 per share. Let’s also say that you can sell a put option, struck at 
+$10, for $1 per share—giving you an effective buy price of $9 per share.
+In this instance, the valuation risk is indeed small as long as we are 
+correct about the relative levels of our valuation layers. Certainly, in this 
+type of scenario, it is easier to commit capital to your investment idea than 
+it would be, say, to sell puts struck at $16 for $0.75 per share!
+Thinking of stock prices in this way, it is clear that when the market 
+price of a stock is within a valuation layer that implies unrealistic economic 
+assumptions, you will more than likely be able to use a combination of 
+stocks and options to tilt the balance of risk and reward in your own 
+favor—the very definition of intelligent option investing.
+Intelligent Option Investing
+In my experience, most stocks are mostly fairly priced most of the time. 
+There may be scenarios at one tail or the other that might be inappropriately 
+priced by the option market (and, by extension, by the stock market), but 
+by and large, it is difficult to find profoundly mispriced assets—an asset 
+whose market price is significantly different from its most likely valuation 
+layer.
+Opportunities tend to be most compelling when the short-term pic-
+ture is the most uncertain. Short-term uncertainties make investing boldly