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Buy and Hedge: The 5 Iron Rules for Investing Over the Long Term by Wayne Ferbert, Jay Pestrichelli

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18. Understanding and Using Options

“I guess that was your accomplice in the wood chipper.”

—Marge Gunderson (played by Frances McDormand) in Fargo (1996)

Just a gentle reminder that there are two sides to every option trade. The value that options command isn’t as unpredictable as a staged kidnapping like Fargo, but nonetheless, there are winners and losers in every trade. Being aware of how options are valued is important to know before using them as a hedging vehicle and keeping you out of the wood chipper.

As discussed in Chapter 16, “What Is an Option?,” the investor can use Options in many ways to create an investment bias. This flexibility allows you to fine-tune your approach and create the most cost-effective set of positions. To understand ...

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