36 lines
2.3 KiB
Plaintext
36 lines
2.3 KiB
Plaintext
could commit to buy a strong, profitable company for less than the amount
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of cash it held—in effect, allowing the investor to pay $0.90 to receive a
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dollar plus a share of the company’s future profits! Although it is true that
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these kinds of opportunities do not come along every day, they do indeed
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come along for patient, insightful investors.
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This example lies at the heart of intelligent option investing, the es-
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sence of which can be expressed as a three-step process:
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1. Understanding the value of a stock
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2. Comparing that intelligently estimated value with the mechani-
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cally derived one implied by the option market
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3. Tilting the risk-reward balance in one’s favor by investing in the
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best opportunities using a combination of stocks and options
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The goal of this book is to provide you with the knowledge you need to be
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an intelligent option investor from the standpoint of these three steps.
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There is a lot of information contained within this book but also a lot
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of information left out. This is not meant to be an encyclopedia of option
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equations, a handbook of colorfully named option strategies, or a treatise on
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financial statement analysis. Unlike academic books covering options, such
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as hull’s excellent book,
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1 not a single integration symbol or mathematical
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proof is found between this book’s covers. Understanding how options are
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priced is an important step in being an intelligent option investor; doing dif-
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ferential partial equations or working out mathematical proofs is not.
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Unlike option books written for professional practitioners, such as
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natenberg’s book,2 you will not find explanations about complex strategies
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or graphs about how “the greeks”3 vary under different conditions. Floor
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traders need to know these things, but intelligent option investors—those
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making considered long-term investments in the financial outcomes of
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companies—have very different motivations, resources, and time horizons
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from floor traders. Intelligent option investors, it turns out, do better not
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even worrying about the great majority of things that floor traders must
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consider every day.
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Unlike how-to books about day trading options, this book does not
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have one word to say about chart patterns, market timing, get-rich-quick
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schemes, or any of the many other delusions popular among people who
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xiv • Introduction |