308  •   Index
d
Debt, investment leverage from, 165–166
Dell, 101
Delta, 151–155, 300n1 (Chapter 8)
Demand-side constraints, 84–86
Depreciation, 282–284
Diagonals, 233
long, 235–237
short, 238–240
Directionality of options, 9–20
calls, 12–16
and exposure, 18–20
importance of, 27–28
puts, 16–18
and stock, 10–11
volatility and predications about, 
68–74
Discount rate, 87–89, 298n5
Dispersion, 302n1 (Chapter 11)
Distribution of returns:
fat-tailed, 45
leptokurtic, 45
lognormal, 36–37
normal, 32, 36, 40, 43–45
Dividend arbitrage, 223, 288–293
Dividend yield, 67
Dividend-paying stocks, prices of, 
35–36
Dividends, 86
Downturns, short puts during, 214–215
Drift:
assumptions about, 32, 35–36
effects of, 67
and long calls, 202–203
and long puts, 191
and long strangles, 206
Drivers of value (see Value drivers)
e
Early exercise, 223
Earnings before interest, taxes, 
depreciation, and amortization 
(EBITDA), 99
Earnings before interest and taxes 
(EBIT), 99
Earnings per share (EPS), 99
Earnings seasons:
and tenor of short puts, 217–218
volatility in, 301n5
EBIT (earnings before interest and 
taxes), 99
EBITDA (earnings before interest, 
taxes, depreciation, and 
amortization), 99
EBP (see Effective buy price)
Economic environment, profitability 
and, 101
Economic life of companies:
and golden rule of valuation,  
82–86
improving valuations by 
understanding, 93–94
Economic value of companies,  
137–139
Effective buy price (EBP), 24–25,  
213, 244
Effective sell price (ESP), 25–26
Efficacy (see Investing level and 
efficacy)
Efficient market hypothesis (EMH), 
33, 34, 40–43
Endowments, 135, 136
Enron, 110
EPS (earnings per share), 99
ESP (effective sell price), 25–26
European-style options, 296n2 
(Chapter 1)
Exchange-traded funds (ETFs), 
options on, 251–252
Execution of option overlay strategies:
collars, 259–262
covered calls, 242–245
protective puts, 250–252
Exercising options, 13,  
296n2 (Chapter 1)
Expansionary cash flows, 82, 104–108