could commit to buy a strong, profitable company for less than the amount 
of cash it held—in effect, allowing the investor to pay $0.90 to receive a 
dollar plus a share of the company’s future profits! Although it is true that 
these kinds of opportunities do not come along every day, they do indeed 
come along for patient, insightful investors.
This example lies at the heart of intelligent option investing, the es-
sence of which can be expressed as a three-step process:
1. Understanding the value of a stock
2. Comparing that intelligently estimated value with the mechani-
cally derived one implied by the option market
3. Tilting the risk-reward balance in one’s favor by investing in the 
best opportunities using a combination of stocks and options
The goal of this book is to provide you with the knowledge you need to be 
an intelligent option investor from the standpoint of these three steps. 
There is a lot of information contained within this book but also a lot 
of information left out. This is not meant to be an encyclopedia of option 
equations, a handbook of colorfully named option strategies, or a treatise on 
financial statement analysis. Unlike academic books covering options, such 
as hull’s excellent book,
1 not a single integration symbol or mathematical 
proof is found between this book’s covers. Understanding how options are 
priced is an important step in being an intelligent option investor; doing dif-
ferential partial equations or working out mathematical proofs is not. 
Unlike option books written for professional practitioners, such as 
natenberg’s book,2 you will not find explanations about complex strategies 
or graphs about how “the greeks”3 vary under different conditions. Floor 
traders need to know these things, but intelligent option investors—those 
making considered long-term investments in the financial outcomes of 
companies—have very different motivations, resources, and time horizons 
from floor traders. Intelligent option investors, it turns out, do better not 
even worrying about the great majority of things that floor traders must 
consider every day.
Unlike how-to books about day trading options, this book does not 
have one word to say about chart patterns, market timing, get-rich-quick 
schemes, or any of the many other delusions popular among people who 
xiv  •   Introduction