I have recently changed my investment strategies from stocks to options. I have a relatively small pot, and I want to build the pot. I believe options are the right way to go about doing this. I have read 3-4 books on options, and most of these were about the strategies you can use to trade options. Needless to say, I was not happy with these.
The cool thing about Amazon is, it uses your shopping data and recommends you relevant products; in this case, The Intelligent Option Investor book. Amazon got it right. This is an incredible book which details the who process of options and how to think about options intelligently. It does cover a lot of strategies but these are easy to understand a smaller in numbers compared to all the books which claim you can make money trading options.
My favourite section of the book is – A sound intellectual framework for assessing value. This section talks about how to value a company! It is simply brilliant.
▶ You can make a lot of mistakes when investing, but as long as you are right about the ultimate direction a stock will take and act accordingly, all those mistakes will be dwarfed by the success of your position. Good investing, then, is essentially a process of recognising and exploiting the directionality of mispriced stocks.
▶Intelligent investors should be very, very happy that the BSM is such a poor tool for pricing options and predicting future stock prices. It is the BSM’s shortcomings and the general market’s unwillingness or inability to spot its structural deficiencies that allow us the opportunity to increase our wealth.
▶Human decision makers do not, it turns out, act as perfectly rational economic animals as the EMH posits but rather are swayed by emotion, illusion, and ingrained prejudice that cause their decisions to be made in consistently flawed ways.
▶A good theory must be simple, but it also must be provably correct under all conditions.
▶Individual investors, by and large, do not receive training in the basic tools of valuation analysis—discounted cash flows and how economic transactions are represented in a set of financial statements. Professional investors are exquisitely trained in these tools but too often spend time spinning their wheels considering immaterial details simply because that is what they have been trained to do and because their compensation usually relies on short- rather than long-term performance. They have all the tools in the world but are taught to apply them to answering the wrong questions.
▶Understanding the interplay between selling more stuff and selling stuff for more is essential to understanding the first driver of value to a firm.