314  •   Index
Procter & Gamble, 84
Productivity, 102
Profit:
from covered calls, 245
from hedging, 254–255
owners’ cash, 82
percent, 172–173
Profit leverage, 179–180, 182–183
Profitability:
and financial leverage, 285–286
and operational leverage,  
283–284
as value driver, 92, 99–102
Proprietary trading desks (prop 
traders), 300n5
Prospect theory, 123–127
Protective puts, 248–258
about, 248–250
BSM cone, 248, 249
with covered calls, 259–262
execution of, 250–252
pitfalls with, 252–258
Pure Digital, 299n6 (Chapter 5)
Put options (puts):
BSM cone for, 54–55
buying, for protection, 23
defined, 11
delta for, 151
on quotes, 145
selling, for income, 23
tailoring exposure with, 24
visual representation of, 16–18
(See also Long puts; Protective puts; 
Short puts)
Put-call parity, 223, 287–293
defined, 287–288
and dividend arbitrage, 288–293
for non-dividend-paying stock, 
289–290
Q
Qualcomm, 260–262
Quotes, option, 144–151
R
Random-walk principal, 41
Ranges of exposure, 3
for call options, 12–13, 15
for ITM options, 58–59
and option pricing, 50–56
Rankine, Graeme, 41–42
Ratioing, 206, 238
Realized losses:
and buying puts, 203
immediate, 180, 183
managing leverage to minimize, 
183–185
and option buying, 187–188
unrealized vs., 175–176
Recessions, leverage during, 198, 199
Reflective thought processes, 116–118
Reflexive thought processes, 116–118
Return(s):
absolute dollar value of, 172–173
for covered calls, 244–245
maximum, 225
percentage, 229
for short puts, 245
(See also Distribution of returns)
Revenue growth, 92, 97–99
Risk, 263–268
career, 263
counterparty, 7–8
liquidity, 256, 263
market, 263–265
in option investing, 267–268
perception of, 123–130
and size of hedges, 255–256
solvency, 256, 263
valuation, 265–267
Risk-averse investors, 123, 125–127
Risk-free rate:
borrowing at, 32, 40, 46
BSM model assumption about, 32, 
35–36, 40, 45–46
Risk-neutral investors, 124–126
Risk-seeking investors, 123, 125–127