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Chapter 7
FIndIng MIsprIced 
OptIOns
All our option-related discussions so far have been theoretical. Now it 
is time to delve into the practical to see how options work in the market. 
After finishing this chapter, you should understand
1. How to read an option chain pricing screen
2. Option-specific pricing features such as a wide bid-ask spread,  
volatility smile, bid and ask volatility, and limited liquidity/ 
availability
3. What delta is and why it is important to intelligent option investors
4. How to compare what the option market implies about future 
stock prices to an intelligently determined range
In terms of where this chapter fits into our goal of becoming intelligent 
option investors, obviously, even if you have a perfect understanding of 
option and valuation theory, if you do not understand the practical steps 
you must take to find actual investment opportunities in the real world, all 
the theory will do you no good.
New jargon introduced in this chapter includes the following:
Closing price Bid implied volatility
Settlement price Ask implied volatility
Contract size Volatility smile
Round-tripping Greeks
Bid-ask spread Delta