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Options for the Beginner and Beyond: Unlock the Opportunities and Minimize the Risks by W. Edward Olmstead - Professor of Applied Mathematics McCormick School of Engineering and Applied Sciences Northwestern University

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What Is a Cheap Option?

Each of us has our own idea about when something is cheap. On a superficial level, something that costs $1 is cheap, and something that costs $100 is expensive. But it is not really the dollar cost that makes something cheap or expensive. Rather, it is whether the intrinsic value of the item purchased is close to the cost paid to own that item. Often, we are tempted to buy something at a price which has been “hyped” way beyond its intrinsic value. Remember the Beanie Baby craze of a few years ago, when those cute little stuffed animals were being hyped as collector’s items and as such were being bought for way more than their intrinsic value? Now that the craze has passed, these items are being sold at garage sales for ...

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