Acknowledgments xiIntroduction xiiiPart I: Options for the
Intelligent Investor Chapter 1: Option Fundamentals
3Characteristics and History 4
Directionality 9
Flexibility 20
Chapter 2: The Black-Scholes-Merton Model 29The BSM’s Main Job is
to Predict Stock Prices 30
The BSM is Lousy at Its Main Job 39
Chapter 3: The Intelligent Investor’s Guide to Option Pricing 49How
Option Prices are Determined 50
Time Value versus Intrinsic Value 56
How Changing Market Conditions Affect Option Prices 59
Part II: A Sound Intellectual Framework for Assessing Value Chapter
4: The Golden Rule of Valuation 77The Value of an Asset 78
Cash Flows Generated on Behalf of Owners 80
The Company’s Economic Life 82
Time Value of Money: Summing Up Cash Flows Over Time 87
Chapter 5: The Four Drivers of Value 91Bird’s Eye View of the
Valuation Process 91
A Detailed Look at the Drivers of Value 97
Chapter 6: Understanding and Overcoming Investing Pitfalls
113Behavioral Biases 114
Structural Impediments 131
Part III: Intelligent Option Investing Chapter 7: Finding Mispriced
Options 143Making Sense of Option Quotes 144
Delta: The Most Useful of the Greeks 151
Comparing an Intelligent Valuation Range with a BSM Range 155
Chapter 8: Understanding and Managing Leverage 163Investment
Leverage 164
Simple Ways of Measuring Option Investment Leverage 169
Understanding Leverage’s Effects on a Portfolio 174
Managing Leverage 183
Chapter 9: Gaining Exposure 187Long Call 189
Long Put 201
Strangle 205
Straddle 208
Chapter 10: Accepting Exposure 211Short Put 212
Short Call (Call Spread) 220
Short Straddle/Short Strangle 230
Chapter 11: Mixing Exposure 233Long Diagonal 235
Short Diagonal 238
Covered Call 240
Protective Puts 248
Collar 258
Chapter 12: Risk and the Intelligent Option Investor 263Market Risk
263
Valuation Risk 265
Intelligent Option Investing 267
Appendix A: Choose Your Battles Wisely 269Where the BSM Works Best
269
Where the BSM Works Worst 273
Appendix B: The Many Faces of Leverage 282Operational Leverage
282
Financial Leverage 285
Appendix C: P ut-Call Parity 287Dividend Arbitrage and Put-Call
Parity 288
Notes 295Index 305
Erik Kobayashi-Solomon is the founder and principal of IOI, LLC and the Director of Research for YCharts, Inc. Previously, he served as Morningstar's Market Strategist and as co-editor of the Morningstar OptionInvestor newsletter. In addition to publishing well-received sector and stock-specific reports for YCharts' individual and institutional clients, Erik has been sought out by a wide range of institutional investors--from the World Bank to value-oriented hedge funds--for his expertise in corporate valuation, option investing strategies, and risk control issues.
Ask a Question About this Product More... |