Index   • 313
Optionality, 4
Options, 3–28
buying (see Exposure-gaining 
strategies)
characteristics of, 4
defined, 4
directionality of, 9–20
examples of, 5–6
expiration of, 187
history of, 6–9
investment leverage from, 166–168
misconceptions about, 1
mispriced, 143–162
(See also specific types)
Options Clearing Corporation (OCC), 8
Options contracts:
counterparties for, 295n1 (Chapter 1)
examples of, 5–6
front-month, 270
private, 6–8
Oracle, 107–108, 144, 146, 148–153, 
155, 157, 159–162
Organic revenue growth, 97
Out-of-the-money (OTM) options:
ATM options vs., 233–234
call vs. put, 27
collars, 258–262
defined, 13, 16, 17
investment leverage for, 171–172
levered strategy with, 180, 181
long calls, 193, 195–197
long diagonals, 235–237
long puts, 203, 204
long strangles, 205–207
and market makers, 147
pricing of, 150
protective puts, 248, 250–253
realized losses and, 187
rising volatility and, 70–74
short diagonals, 238–240
short puts, 213, 215
short strangles, 231
short-call spreads, 221–224
time decay for, 66–67
unrealized losses, 187
Overconfidence, 118–122
Overexposure, 247
Overlays, 23, 234
Owners:
cash flows generated on behalf of, 
80–82
free cash flow to (see Free cash flow 
to owners (FCFO))
Owners’ cash profit (OCP):
defined, 82
nominal GDP growth vs., 104–108
profitability as, 99–102
P
Parity, 288
Pattern recognition, 114–118
Peaks (business-cycle):
operational leverage in, 284
and troughs, 302–303n2
Pension funds, 135, 136
Percent delta, 169–173
Percent profit, 172–173
Percentage return, 229
Portfolio management:
for long calls, 196–201
for long puts, 204–205
for long strangles, 207
for short puts, 216–220
for short-call spreads, 228–230
Portfolios:
hedging, 251–252
investment leverage in, 174–183
Precision, false, 93, 96–97
Premium, 13
Prepaid interest, 170
Present value of future cash flows, 87–89
Pricing power, 98
Principal (financial), 168
Principals, agents vs., 131–132
Problem solving, X- vs. C-system, 
115–118