This is a good post with things to think about. The key variables of option pricing--but in particular Vol--are not understood by most people. The second order

This is a good post with things to think about. The key variables of option pricing--but in particular Vol--are not understood by most people. The second order effects people fail to grasp. A simple, classic example: volatility smile. The <valuation> of an option is <in general> distinct from "payout" and not simple linear math. [1] ________ [1] http://en.wikipedia.org/wiki/Black%E2%80%93Scholes http://en.wikipedia.org/wiki/Black%E2%80%93Scholes Consider: You can't lose money just by owning an option This is clearly a problematic statement. etc.