The Intelligent Option Investor: Applying Value Investing to the World of Options

Erik's great skill is distilling the arcane world of options pricing into understandable concepts and visuals. From there, he breaks down the corporate value creation process in a manner that is transparent, testable, and universal.Investing successfully requires knowing oneself. To that end, Erik dedicates chapter 6 on the role of bias in the decision-making process and how those biases influence "expensive lessons" aka poor decisions. Additionally, ch. 6 describes the incentive structures in the industry that influence pricing trends and pose a risk to retail investors.The final third of the book combines the knowledge of the first two parts to provide an approach for identifying asymmetric investment opportunities. This is includes not only identifying opportunities, but positioning and leverage as well.In sum, the book is an excellent review of the motivation, theory and practice of options investing.

The whole idea behind this book can be described in one sentence: find the stocks that are "grossly mispriced" and buy long-term calls. Yeah, right. A 10-year old understands that. To find those companies Erik suggests to make your own valuation, but there is no actual content on how to do that.Here is a quote from the book on how to find good investment opportunities: "Remember, though, that we have our crystal ball, and we know that this stock will likely be between $70 and $110 per share in a few years". Yep, all you need is a crystal ball.I wouldn't say that this book is completely useless, and I found a few good paragraphs that are very important for me. But there is a problem. The book won't give anything to seasoned traders and the same time it's not for beginners.The book is also badly structured and formatted:-- Notes are at the end. Why not use footnotes? Why not insert notes in some shaded box right on the page, side-to-side with the relevant text?-- Appendixes are basically additional chapters and should not be appendixes.-- The whole book is black-and-white, while graphs in this particular book would definitely benefit from color. Imagine a graph with gray shaded area that is labeled "green".-- Some content with valuation example is downloadable from Erik's website in form of PDF file. Thanks, but no thanks. When I buy a paperback, I expect the book to be self-contained and available offline.

Most options related books are meant for traders, not long-term investors, and usually involve trading options with short term expirations. Such books usually take up half the book in explaining various aspects of option formulas (the "greeks") and usually assume that the underlying stock is fairly priced by the market. In sharp contrast, this is a rare book on options that focusses on its use by investors who think they have found a business that has been mispriced by the market and are interested in seeing if they can exploit this situation in the option market. I think the author has done a pretty good job of summarizing the various issued involved and the risks and benefits of some of the strategies that can by using long term options (LEAPs). He has also found a useful way to visualize an option position, a difficult feat given the many parameters involved. As a value investor who has thought about many of these issues, and with some experience in using options as portfolio tool, I found this book useful, and the diagrams helpful.

The author is obviously well versed on the topic. He lays a pretty good foundation in the beginning of the book. I’m in the financial field with licenses so I’ve heard many of the concepts and I understand quite a bit about options. Still I found many of his explanations later in the book to be obtuse. He refers you back to his website which currently has little more additional detail beyond two spreadsheets. I was hoping to pass the book along to a friend who is totally a beginner. This would not be the right book for them.

I really enjoyed this book - it covers two areas that are key to my Investment process (calculating the fair value of publicly traded companies and how to intelligently trade options based on those valuations).I especially like the graphics in this book - which are very unique - they clearly demonstrate the Authors approach and ideas regarding Intelligent Options Trading.Make sure you don't skip Appendix A - which clearly outlines what types of situations work best (and worst) based on the strengths and weaknesses of the Black-Scholes-Merton model (BSM) for pricing options. You may need to read this section several times, but it is crucial for understanding how to find the best opportunities for your risk capital.If you are just starting out - I would suggest supplementing this book with a few others, which go into more depth regarding the transactional processes involved with options trading. I have several book recommendations for beginners and beyond on my website: www.zoptiontrader.com

I just finished reading Erik's book and have to say that it is one of the most lucid and useful explanation of options as an investment tool that I have come across despite having studied options as part my degree in Business Management.The visual explanation of various position is very valuable in having a clear understanding of how and why each strategy discussed works or doesn't work. The book also gives important tools to value a company. Accompanied by the web-site, one is bound to profit immensely provided a disciplined approach to execution of the strategies is applied.A few numerical errors have inadvertently crept in the book and there is an errata available on site to address these.Overall, a great book and a big thank you to Erik.

I'm not a trader and consider myself closer to being a being a value investor. For someone like this, this book is just a great fit as it explains how to use Options from the lens of a long term value investor. Thanks to the author.

This is the best I have ever read on this subject and clearly the one that really shows you how and explains complex terms simply