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+Option Fundamentals   • 9
+developing and refining an option pricing model known as the Black-
+Scholes or Black-Scholes-Merton model, which I will hereafter abbreviate 
+as the BSM.
+The BSM is a testament to human ingenuity and theoretical elegance, 
+and even though new methods and refinements have been developed 
+since its introduction, the underlying assumptions for new option pricing 
+methods are the same as the BSM. In fact, throughout this book, when you 
+see “BSM, ” think “any statistically based algorithm for determining option 
+p r i c e s .”
+The point of all this background information is that options are not 
+only not new-fangled financial instruments but in fact have a long and 
+proud history that is deeply intertwined with the development of modern 
+economies themselves. Those of you interested in a much more thorough 
+coverage of the history of options would do well to read the book, Against 
+the Gods: The Remarkable History of Risk, by Peter Bernstein (New Y ork: 
+Wiley, 1998).
+Now that you have a good sense of what options are and how they are 
+used in everyday life, let’s now turn to the single most important thing for a 
+fundamental investor to appreciate about these financial instruments: their 
+inherent ability to exploit directionality.
+Directionality
+The key takeaway from this section is evident from the title. In addition to 
+demonstrating the directional power inherent in options, this section also 
+introduces the graphic tools that I will use throughout the rest of this book 
+to show the risk and reward inherent in any investment—whether it is an 
+investment in a stock or an option.
+For those of you who are not well versed in options yet, this is the 
+section in which I explain most of the jargon that you simply cannot escape 
+when transacting in options. However, even readers who are familiar with 
+options should at least skim through this explanation. Doing so will likely 
+increase your appreciation for the characteristics of options that make 
+them such powerful investment tools and also will introduce you to this 
+novel way of visualizing them.