I discuss specific option investment strategies in great detail in Part III of this book. However, after reading Chapters 2 and 3, you should have a good understanding of how options are priced, so it is a good time to see in what circumstances the Black-Scholes-Merton model (BSM) works best and where it works worst. An intelligent investor looks to avoid the conditions where the BSM works best like the plague and seek out the conditions where it works worst because those cases offer the best opportunities to tilt the risk-reward balance in the investor’s favor.
Jargon introduced in this appendix includes
The following are ...