Notes  • 297
this would, in turn, imply an 87 percent  chance of being higher than 
$40 in a year.
3. Tenor is just a specialty word used for options and bonds to mean the 
remaining time before expiration/maturity. We will see later that op-
tion tenors usually range from one month to one year and that special 
long-term options have tenors of several years.
4. We’re not doing any advanced math to figure this out. We’re just eye-
balling the area of the exposure range within the cone in this diagram 
and recalling that the area within the cone of the $60 strike, one-year 
option was about the same.
5. In other words, in this style of trading, people are anchoring on recent 
implied volatilities—rather than on recent statistical volatilities—to 
predict future implied volatilities.
6. Note that even though this option is now ITM, we did not pay for any 
intrinsic value when we bought the option. As such, we are shading the 
entire range of exposure in green.
Chapter 4
1. The “capital” we have discussed so far is strategic capital. There is an-
other form of tactical capital that is vital to companies, termed working 
capital. Working capital consists of the short-term assets essential for 
running a business (e.g., inventory and accounts receivables) less the 
short-term liabilities accrued during the course of running the busi-
ness (e.g., accounts payable). Working capital is tactical in the sense 
that it is needed for day-to-day operation of the business. A company 
may have the most wonderful productive assets in the world, but if it 
does not have the money to buy the inventory of raw materials that will 
allow it to produce its widgets, it will not be able to generate revenues 
because it will not be able to produce anything.
2. The law of large numbers is actually a law of statistics, but when most 
people in the investing world use this phrase, it is the colloquial version 
to which they are referring. 
3. Apple Computer, for instance, was a specialized maker of computers 
mainly used by designers and artists in the late 1990s. Through some