21 lines
904 B
Plaintext
21 lines
904 B
Plaintext
269
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Appendix A
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Choose Your Battles
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WiselY
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I discuss specific option investment strategies in great detail in Part III
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of this book. However, after reading Chapters 2 and 3, you should have a
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good understanding of how options are priced, so it is a good time to see
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in what circumstances the Black-Scholes-Merton model (BSM) works best
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and where it works worst. An intelligent investor looks to avoid the condi-
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tions where the BSM works best like the plague and seek out the conditions
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where it works worst because those cases offer the best opportunities to tilt
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the risk-reward balance in the investor’s favor.
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Jargon introduced in this appendix includes
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Front month
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Fungible
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Idiosyncratic assets
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Where the BSM Works Best
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The following are the situations in which the BSM works best and are the
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conditions you should most avoid:
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1. Short investment time horizons
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2. Fungible investment assets |