Add training workflow, datasets, and runbook
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IntroduCtIon
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You have a tremendous advantage over algorithmic trading models,
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investment bank trading desks, hedge funds, and anyone who appears on or
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pays attention to cable business news shows. This book is written to show
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where that advantage lies and how to exploit it to make confident and suc-
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cessful investment choices. In doing so, it explains how options work and
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what they can tell you about the market’s estimation of the value of stocks.
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even if, after reading it, you decide to stick with straight stock in-
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vesting and never make an option transaction, understanding how options
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work will give you a tremendous advantage as an investor. The reason for
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this is simple: by understanding options, you can understand what the rest
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of the market is expecting the future price of a stock to be. Understanding
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what future stock prices are implied by the market is like playing cards with
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an opponent who always leaves his or her hand face up on the table. Y ou
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can look at the cards you are dealt, compare them with your opponent’s,
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and play the round only when you are sure that you have the winning hand.
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By incorporating options into your portfolio, you will enjoy an even
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greater advantage because of a peculiarity about how option prices are
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determined. Option prices are set by market participants making trans-
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actions, but those market participants all base their sale and purchase
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decisions on the same statistical models. These models are like sausage
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grinders. They contain no intelligence or insight but rather take in a few
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simple inputs, grind them up in a mechanical way, and spit out an option
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price of a specific form.
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An option model does not, for instance, care about the operational
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details of a company. This oversight can lead to situations that seem to be
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too good to be true. For instance, I have seen a case in which an investor
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