Chapter 12


The preceding 11 chapters have given you a great deal of information about the mechanics of option investing and stock valuation. In this last chapter, let’s look at a subject that I have mentioned throughout this book—risk—and see how an intelligent option investor conceives of it.

There are many forms of risk—some of which we discussed earlier (e.g., the career risk of an investment business agent, solvency risk of a retiree looking to maintain a good quality of life, and liquidity risk of a parent needing to make a big payment for a child’s wedding). The two risks I discuss here are those that are most applicable to an owner of capital making potentially levered investments in complex, uncertain ...

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