1
Part I
OptiOns FOr the 
intelligent invest Or
Don’t believe anything you have heard or read about options.
If you listen to media stories, you will learn that options are modern 
financial innovations so complex that only someone with an advanced 
degree in mathematics can properly understand them. 
Every contention in the preceding sentence is wrong.
If you listen to the pundits and traders blabbing on the cable business 
channels, you will think that you will never be successful using options 
unless you understand what “put backspreads, ” “iron condors, ” and count- 
less other colorfully named option strategies are. Y ou will also learn that 
options are short-term trading tools and that you’ll have to be a razor-sharp 
“technical analyst” who can “read charts” and jump in and out of positions 
a few times a week (if not a few times a day) to do well.
Every contention in the preceding paragraph is so wrong that believing 
them is liable to send you to the poor house.
The truth is that options are simple, directional instruments that 
we understand perfectly well from countless encounters with them in 
our daily lives. They are the second-oldest financial instrument known to 
humanity—in a quite literal sense, modern economic life would not be 
possible without them. Options are instruments that not only can be used 
but should be used in long-term strategies; they most definitely should be 
traded in and out of as infrequently as possible.