192  •   The Intelligent Option Investor
In general, attempting to profit from potential mergers is dif-
ficult using options because you have to get both the timing of the 
suspected transaction and the acquisition price correct. I will discuss 
a possible solution to this situation in the next section about picking 
strike prices.
The second case in which it is not necessary to buy as long a tenor as 
possible is when you are trading in expectation of a particular company 
announcement. In general, this game of anticipating stock price move-
ments is a hard one to win and one that value investors usually steer clear 
of, but if you are sure that some announcement scheduled for a particular 
day or week is likely to occur but do not want to make a long-term invest-
ment on the company, you can buy a shorter-tenor option that obviously 
must include the anticipated announcement date. It is probably not a bad 
idea to build in a little cushion between your expiration and the anticipated 
date of the announcement because sometimes announcements are pushed 
back and rescheduled.
Strike Price Selection 
From the discussion regarding leverage in the preceding section, it is 
clear that selecting strike prices has a lot to do with selecting what level 
of leverage you have on any given bet. Ultimately, then, strike selec-
tion—the management of leverage, in other words—is intimately tied 
to your own risk profile and the degree to which you are risk averse or 
risk seeking.
My approach, which I will talk more about in the following section 
on portfolio management, may be too conservative for others, but I put it 
forward as one alternative among many that I have found over time to be 
sensible. Any investment has risk to the extent that there is never perfect 
certainty regarding a company’s valuation. Some companies have a fairly 
tight valuation range—meaning that the confluence of their revenue stream, 
profit stream, and investment efficacy does not vary a great deal from best to 
worst case. Other companies’ valuation ranges are wide, with a few clumps 
of valuation scenarios far apart or with just one or two outlying valuation 
scenarios that, although not the most likely, are still materially probable.