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