Index 
Martingale strategy, 140, 145 
Mathematical applications, 456-489 
Black-Scholes model, 456-466 (see also 
Black-Scholes model) 
expected return, 466-472 
calculation of, 467, 4 71 
definition,466 
expected profit, computation of, 468 
lognormal distribution, typical, 469 
Simpson's Rule, 471 
Trapezoidal Rule, 471 
facilitation (institutional block positioning), 482-485 
delta spread, 484 
follow-up action, computer as aid in, 485-488 
implementation, 488-489 
neutral spread, 483-485 
hedge ratio, 482-485 (see also Mathematical applica­
tions, facilitation [institutional block position­
ing]) 
strategy decisions, applying calculations to, 4 72-482 
calendar spreads, 479-480 
call buying, 474 
call writing, 472-474 
profitability, 474-475 
put buying, 478-479 
put option, pricing, 477-478 
ratio strategies, 480-482 
risk, 4 75-4 77 
theoretical value of spread, using, 480 
summary, 489 
Mathematical applications for index options, 644-651 
Black model, 647-648, 651 
Black-Scholes model, 644-645, 646, 651 
cash-based, 644-646 
deltas, 648 
European exercise, 647 
follow-up action, 648-651 
for inter-index spreads, 648-649 
"sliding scale," 649-650 
futures, 644 
options, 647-648 
implied dividend, 646 
Mathematical concepts, advanced, 901-907 
Mathematical considerations for index products, 641-651 
Mathematical models: 
for index products, 641-651 
arbitrage, 641-644 (see also Arbitrage) 
graph, three-dimensional, 651 
mathematical applications, 644-651 (see also 
Mathematical applications) 
summary, 651 
for pricing options, 14 
Mayhew, Dr. Stewart, 806 
Mergers, risk arbitrage and, 445-450 
Monte Carlo analysis, 806 
simulation, 807-809, 828 
991 
Morgan Stanley High-Tech index ($MSH), 639, 788 
Naked call writing, 132-145 
high risk strategy, 135-136 
"kicker," 136 
marked to market daily, 136 
implied volatility, 132 
investment required, 134-137 
margin requirements, 134-137 
not same as short sale of underlying stock, 133-134 
risk and reward, 138-145 
Martingale strategy, 140, 145 
rolling for credits, 140-144 
time value as misnomer, 144 
selling naked options, philosophy of, 137-138 
index options, 138 
summary, 144-145 
uncovered (naked) call option, 133-134 
Naked put write, evaluating, 296-298 
Narrow-based indices, 500 
NASDAQ: 
Index ($NDX), 501 
-100 (NDX), 588 
tracking stock (QQQ), 638,639 
Neutral calendar spread, 192-194 
Neutrality: 
effects of implied volatility changes on, 755-756 
in options positions, 846-84 7 
New York Stock Exchange: 
"circuit breaker," 562 
expiration, 510-511 
Index,497,500,532 
limits on index futures traded, 511 
POT system, 555-556 
Nikkei 225 Index, 532, 601 
No-cost collars, 278-280 
Notice period, 659, 661-662 
OEX, 497, 500-501 
Oil and Gas Index (XOI), 588, 719 
Open interest, 6 
"Open outcry" method of trading futures, 508-509 
Opening transactions, 6 
Option markets, 22 
board broker system, 22 
Chicago Board Options Exchange (CBOE), 22 
Web site, 23 
market-makers, 22 
Option Price Reporting Authority (OPRA), 368 
Option pricing curve, 99