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+172  •   The Intelligent Option Investor
+the option’s value. Although everyone (especially fly-by-night investment 
+newsletter editors) likes to tout their percentage returns, we know from 
+our earlier investigations of leverage that percentage returns are only part 
+of the story of successful investing. Let’s see why using the three invest-
+ments I mentioned earlier—an ITM call struck at $20, an OTM call struck 
+at $39, and a long stock position at $31. 
+I believe that there is a good chance that this stock is worth north of 
+$40—in the $43 range, to be precise (my worst-case valuation was $30, and 
+my best-case valuation was in the mid-$50 range). If I am right, and if this 
+stock hits the $43 mark just as my options expire,
+2 what do I stand to gain 
+from each of these investments?
+Let’s take a look. 
+Spent Gross Profit Net Profit Percent Profit
+$39-strike call 0.18 4.00 3.82 2,122
+$20-strike call 11.50 23.00 11.50 100
+Shares 31.25 43.00 11.75 38
+This table means that in the case of the $20-strike call, we spent 
+$11.50 to win gross proceeds of $23.00 (= $43 − $20) and a profit net of 
+investment of $11.50. Netting $11.50 on an $11.50 investment generates a 
+percentage profit of 100 percent.
+Looking at this chart, the first thing you are liable to notice is the 
+“Percent Profit” column. That 2,122 percent return looks like something 
+you might see advertised on an option tout service, doesn’t it? Y es, that 
+percentage return is wonderful, until you realize that the absolute value 
+of your dollar winnings will not allow you to buy a latte at Starbuck’s. 
+Likewise, the 100 percent return on the $20-strike options looks heads and 
+shoulders better than the measly 38 percent on the shares, until you again 
+realize that the latter is still giving you more money by a quarter.
+Recall the definition of leverage as a way of “boosting investment re-
+turns calculated as a percentage, ” and recall that in my previous discussion 
+of financial leverage, I mentioned that the absolute dollar value is always 
+highest in the unlevered case. The fact is that many people get excited about 
+stratospheric percentage returns, but stratospheric percentage returns only