# Options as a Strategic Investment PDF: How to Download the Ultimate Guide by Lawrence G. McMillan for Free

## Options as a Strategic Investment by Lawrence G. McMillan: A Comprehensive Guide for Options Traders

If you are interested in learning more about options trading, you may have heard of the book Options as a Strategic Investment by Lawrence G. McMillan. This book is widely regarded as one of the best and most comprehensive guides for options traders, covering everything from the basics to the advanced concepts of options trading. In this article, we will give you an overview of what options are, why they are a strategic investment, what the book Options as a Strategic Investment by Lawrence G. McMillan is about, and how you can get a free PDF download of it.

## lawrence mcmillan options as a strategic investment pdf free download

## What are options and why are they a strategic investment?

Options are contracts that give the buyer the right, but not the obligation, to buy or sell an underlying asset at a specified price (called the strike price) on or before a certain date (called the expiration date). The seller of an option, also known as the writer, has the obligation to fulfill the contract if the buyer exercises his or her right.

Options are traded on various types of underlying assets, such as stocks, indices, commodities, currencies, futures, and more. Options can be used for various purposes, such as hedging, speculating, income generation, or portfolio diversification.

Options are considered a strategic investment because they offer several benefits that other financial instruments do not. Some of these benefits are:

### The basics of options trading

#### Call and put options

There are two types of options: call options and put options. A call option gives the buyer the right to buy the underlying asset at the strike price, while a put option gives the buyer the right to sell the underlying asset at the strike price.

For example, if you buy a call option on Apple stock with a strike price of $150 and an expiration date of December 31st, you have the right to buy 100 shares of Apple stock at $150 per share on or before December 31st. If Apple stock rises above $150 before the expiration date, you can exercise your option and buy the shares at a lower price than the market price, making a profit. If Apple stock falls below $150 before the expiration date, you can let your option expire worthless, losing only the premium you paid for the option.

If you buy a put option on Apple stock with a strike price of $150 and an expiration date of December 31st, you have the right to sell 100 shares of Apple stock at $150 per share on or before December 31st. If Apple stock falls below $150 before the expiration date, you can exercise your option and sell the shares at a higher price than the market price, making a profit. If Apple stock rises above $150 before the expiration date, you can let your option expire worthless, losing only the premium you paid for the option.

#### Intrinsic and extrinsic value

The value of an option consists of two components: intrinsic value and extrinsic value. Intrinsic value is the difference between the strike price and the current market price of the underlying asset, if the option is in the money. An option is in the money if exercising it would result in a profit. A call option is in the money if the market price of the underlying asset is higher than the strike price, while a put option is in the money if the market price of the underlying asset is lower than the strike price.

For example, if you have a call option on Apple stock with a strike price of $150 and an expiration date of December 31st, and Apple stock is trading at $160 on December 15th, your option has an intrinsic value of $10 per share ($160 - $150). If you have a put option on Apple stock with a strike price of $150 and an expiration date of December 31st, and Apple stock is trading at $140 on December 15th, your option has an intrinsic value of $10 per share ($150 - $140).

Extrinsic value is the amount that the option buyer is willing to pay for the possibility that the option will become more profitable before the expiration date. Extrinsic value depends on several factors, such as time to expiration, volatility of the underlying asset, interest rates, dividends, and demand and supply of the option. Extrinsic value is also known as time value or premium.

For example, if you have a call option on Apple stock with a strike price of $150 and an expiration date of December 31st, and Apple stock is trading at $160 on December 15th, your option has an intrinsic value of $10 per share ($160 - $150). However, you may have paid more than $10 per share for the option when you bought it, because there is still some time left until the expiration date and Apple stock may rise even higher. The difference between what you paid for the option and its intrinsic value is its extrinsic value.

#### Option pricing models

Option pricing models are mathematical formulas that estimate the fair value of an option based on various inputs, such as the current market price of the underlying asset, the strike price, the time to expiration, the volatility of the underlying asset, the interest rate, and the dividend rate. Option pricing models help traders to evaluate whether an option is overpriced or underpriced in relation to its theoretical value.

One of the most widely used option pricing models is the Black-Scholes model, which was developed by Fischer Black and Myron Scholes in 1973. The Black-Scholes model assumes that the underlying asset follows a lognormal distribution, that there are no transaction costs or taxes, that there are no arbitrage opportunities, that interest rates and volatility are constant, and that dividends are paid continuously.

The Black-Scholes formula for a European call option (an option that can only be exercised at maturity) is:

$$C = S \cdot N(d_1) - K \cdot e^-rT \cdot N(d_2)$$ where:

C is the value of the call option

S is the current market price of the underlying asset

K is the strike price

r is the risk-free interest rate

T is the time to expiration (in years)

N(.) is the cumulative standard normal distribution function

d1 = (ln(S/K) + (r + Ïƒ2/2)T) / (ÏƒT)

d2 = d1 - ÏƒT

Ïƒ is the volatility of the underlying asset

The Black-Scholes formula for a European put option (an option that can only be exercised at maturity) is:

$$P = K \cdot e^-rT 71b2f0854b