Add training workflow, datasets, and runbook
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194 • The Intelligent Option Investor
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Advanced Building Corp. (ABC)
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5/18/2012 5/20/2013 249 499 749 999
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Date/Day Count
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Stock Price
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GREEN
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Here I have again maximized my tenor by buying LEAPS, but this
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time I increase my leverage to something like an “IRL/10.0” level in case
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the stars align and the stock price sales to my outlier valuation.
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Some people would say that the IIM approach is absolutely the op-
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posite of a rational one. If you are—the counterargument goes—confident
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in your valuation range, you should try to get as much leverage on that idea
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as possible; buying an ITM option is stupid because you are not using the
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leverage of options to their fullest potential. This counterargument has its
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point, but I find that there is just too much uncertainty in the markets to be
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too bold with the use of leverage.
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Options are time-dependent instruments, and if your option expires
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worthless, you have realized a loss on whatever time value you original-
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ly spent on it. Economies, now deeply intertwined all over the globe, are
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phenomenally complex things, so it is the height of hubris to claim that
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I can perfectly know what the future value of a firm is and how long it will
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take for the market price to reflect that value. In addition, I as a human
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decision maker am analyzing the world and investments through a con-
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genital filter based on behavioral biases.
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Retaining my humility in light of the enormous complexity of the
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marketplace and my ingrained human failings and expressing this humility
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