300 •   N o t e s
4. The original academic paper discussing prospect theory was published 
in Econometrica, Volume 47, Number 2, in March 1979 under the title: 
“Prospect Theory: An Analysis of Decision Under Risk. ”
5. Over the years, the paradigm for broker-dealers has changed, so some 
of what is written here is a bit dated. Broker-dealers have one part of 
its business dedicated to increasing customer “flow” as is described 
here. Over the last 20 years or so, however, they have additionally 
begun to capitalize what amounts to in-house hedge funds, called 
“proprietary trading desks” or “prop traders. ” While the prop traders 
are working on behalf of corporations that were historically known as 
broker-dealers (e.g., Goldman Sachs, Morgan Stanley), they are in fact 
buy-side institutions. In the interest of clarity in this chapter, I treat 
broker-dealers as purely sell-side entities even though they in fact have 
elements of both buy- and sell-sides.
Chapter 7
1. Round-tripping means buying a security and selling it later.
2. This bit of shorthand just means a bid volatility of 22.0 and an ask 
volatility of 22.5.
Chapter 8
1. This is one of the reasons why I called delta the most useful of the 
Greeks.
2. When I pulled these data, I pulled the 189-day options, so my chance 
of this stock hitting that high a price in this short time period is slim, 
but the point I am making here about percentage versus absolute re-
turns still holds true.
3. A tool to calculate all the downside and upside leverage figures shown 
in this chapter is available on the intelligent option investor website.
4. “Buffett’s Alpha, ” Andrea Frazzini, David Kabiller, and Lasse H. Ped-
ersen, 2012, National Bureau of Economic Research, NBER Working 
Paper No. 19681.