From preface to Black-Scholes Made Easy published by John Wiley & Sons

A few years ago, a senior strategist at one of the world's leading investment firms told me something quite profound.

"Many people," he said, "gain some understanding of the stock market. Then they apply that way of thinking to the options market. Usually these people do not fare very well.

"A much smaller group of people gain a sophisticated understanding of options- pricing theory. They then apply this way of thinking to the options market and to the stock market. These people have a superior understanding of both markets. They tend to fare extremely well."

In 1997, the Nobel Prize in Economics was awarded for the work that led to Black-Scholes Options-Pricing Theory. Black-Scholes has become the fundamental way of understanding the relationships among options prices, stock forecasts and expected stock-market volatility.

Black-Scholes Options-Pricing Theory is based in the mathematics of probability distributions. Unfortunately, because of the way Black-Scholes usually is presented, many people find the theory's advanced mathematics daunting.

Black-Scholes Made Easy makes this sophisticated way of thinking accessible to people who do not have the backgrounds necessary to do Nobel-Prize-winning mathematics. Black-Scholes Made Easy shows you animations and simulations that you can understand easily and intuitively. The mathematics of Black-Scholes and probability distributions is behind the screen driving the animations and simulations.

Animations and simulations review the basics of how options work. They show you the relationships among option prices, stock-market volatility, and financial forecasts.

Animations show you that every financial forecast is a probability distribution and what that means. Simulations give you a clear understanding of what investment professionals mean when they talk about "expected return." The expression may not mean what you think!

Once you have worked through the book and animations, you will understand how market-equilibrium forecasts are embedded in option prices. Using the animations, you will be able to extract from option prices the market-equilibrium forecasts of stocks you are interested in. You will see how, if you disagree with any of those forecasts, you can use options to leverage your expected return.

Based on your forecast, the animation calculates the expected return, probability of profit, and probability of being in the money for options you hold to maturity. You can simulate potential payoffs of investments you have in mind.

Black-Scholes Options-Pricing Theory revealed that investing in options is a probability game. Black-Scholes Made Easy shows you your odds.

jerrymarlow@jerrymarlow.com

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