4  •   The Intelligent Option Investor
intelligent option investor without understanding these basic facts. The 
concepts discussed here will be covered in greater detail and depth later in 
this book. For now, it is enough to get a sense for what options are, how to 
think about them, and why they might be useful investment tools.
Characteristics and History
By the end of this section, you should know the four key characteristics 
of options, be able to name a few options that are common in our daily 
lives, and understand a bit about the long history of options as a financial 
product and how modern option markets operate.
Jargon introduced in this section is as follows:
Black-Scholes-Merton model (BSM)
Listed look-alike
Central counterparty
Characteristics of Options
Rather than giving a definition for options, I’ll list the four most important 
characteristics that all options share and provide a few common examples. 
Once you understand the basic characteristics of options, have seen a few 
examples, and have spent some time thinking about them, you will start to 
see elements of optionality in nearly every situation in life.
An option
1. Is a contractual right
2. Is in force for a specified time 
3. Allows an investor to profit from the change in value of another 
asset
4. Has value as long as it is still in force
This definition is broad enough that it applies to all sorts of options—
those traded on a public exchange such as the Chicago Board Options 
Exchange and those familiar to us in our daily lives.