212  •   The Intelligent Option Investor
setting $50 aside in an escrow account you can’t touch and promising that 
you will buy the stock with the escrow funds in the future if requested to 
do so? From a risk perspective, “very little” is the answer. 
Short calls are more complicated, but I will discuss the leverage car -
ried by them using elements of the structure I set forth in Chapter 8. In the 
following overviews, I add one new line item to the tables that details the 
margin requirements of the positions.
Intelligent option investors accept exposure when the market over -
estimates the likelihood of a valuation that the investor believes is not a 
rational outcome. In graphic terms, this means that either one or both of 
the investor’s best- and worst-case valuation scenarios lie well within the 
Black-Scholes-Merton model (BSM) cone.
Simple (one-option) strategies to accept exposure include 
1. Short put
2. Short call (call spread)
Complex (multioption) strategies to accept exposure include the following:
1. Short straddle
2. Short strangle
Jargon introduced in this chapter includes the following:
Margin Put-call parity
Early exercise Cover (a position)
Writing (an option)
Short Put
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