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

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Chapter 8

UNDERSTANDING AND MANAGING LEVERAGE

In the media, the word leverage seems like it usually occurs alongside such words as dangerous, speculative, or even irresponsible, so most people have internalized the message that leverage is morally wrong; options—levered instruments that they are—are, by extension, viewed as morally wrong as well. In fact, nearly everyone uses leverage every day of their lives without incident and presumably without incurring a moral stain. In my opinion, it is not leverage that is the problem but rather an ignorance of how leverage works, coupled with overleverage and the inherent human belief that disasters only happen to someone else, that is the problem.

Leverage is a powerful tool, but like all powerful tools, ...

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