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The Intelligent Option Investor: Applying Value Investing to the World of Options by Erik Kobayashi-Solomon

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Appendix B

THE MANY FACES OF LEVERAGE

An intelligent option investor must understand investing leverage in order to make sense of option investing strategies. Investing leverage is, however, not the only form of leverage, and to have a well-rounded and well-educated view of investing leverage, you should understand the other forms as well. In addition, when assessing the value of companies, it is important to understand leverage because leverage often is the root cause of rapid changes in profitability during times of changing consumer demand such as inflection points in the business cycle.

Operational Leverage

Operational leverage is the acceptance of fixed operating costs in order to make a higher per-unit profit, such as when a company decides ...

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