306  •   Index
At-the-money (ATM) options: (continued)
long straddles, 208–209
OTM options vs., 233–234
protective puts, 250–251, 253
short diagonals, 238, 240
short puts, 215, 216
short straddles, 230
short-call spreads, 222–225
AUM (assets under management), 132
B
Balance-sheet effects, 92, 108–111
Behavior, efficient market hypothesis 
as model for, 41–42
Behavioral biases, 114–130
overconfidence, 118–122
pattern recognition, 114–118
perception of risk, 123–130
Behavioral economics, 42, 114
Bentley, 97–98
Berkshire Hathaway, 185
Bernstein, Peter, 9
Biases, behavioral (see Behavioral 
biases)
Bid price, 147
Bid-ask spreads, 147–149
Bimodal outcomes, companies with, 
277–278
Black, Fischer, 8–9
BlackBerry, 208–209
Black-Scholes-Merton (BSM) model, 9
assumptions of, 32–33, 40–47, 78, 150
conditions favoring, 269–273
conditions not favoring, 273–281
incorrect facets of, 29
predicting future stock prices from, 
32–39
ranges of exposure and price 
predictions from, 50–56
theory of, 32
(See also BSM cone)
Bonds, investing in short puts vs., 
213–214
Booms, leverage during, 199
Breakeven line, 25
for call options, 15, 16
for long strangle, 26–27
for put options, 17, 18
(See also Effective buy price [EBP])
Broker-dealers, 137, 299–300n5
Brokers, benefits of short-term trading 
for, 64
BSM cone:
for call options, 50–55
for collars, 258
for covered calls, 240–244
creating, 156–160
defined, 38–39
delta-derived, 151–155
discrepancies between valuation and, 
160–162
for ITM options, 57–58
for long calls, 189
for long diagonals, 235
for long puts, 201
for long strangles, 205
overlaying valuation range on, 160
for protective puts, 248, 249
for put options, 54–55
for short diagonals, 238
for short puts, 212, 216, 217
for short straddles, 230
for short strangles, 231
for short-call spreads, 220
with simultaneous changes in variables, 
68–74
and time-to-expiration assumptions, 
64–67
and volatility assumptions,  
60–64
BSM model (see Black-Scholes-Merton 
(BSM) model)
Bubbles, 42–43
Buffett, Warren, xv, 184–185
Buying options (see Exposure-gaining 
strategies)
Buy-side structural impediments, 
132–136