Index   • 309
Expiration of options, 187
Explicit forecast stage, 93–96
Exposure:
accepting, 14, 18–20
canceling out, 18–20
gaining, 13, 18–20
notional, 173
tailoring level of, 24
(See also Ranges of exposure)
Exposure-accepting strategies,  
211–232
margin requirements for, 211–212
short call, 220–230
short put, 212–220
short straddle, 230–232
short strangle, 231–232
Exposure-gaining strategies, 187–209
and expiration of options, 187
long call, 189–201
long put, 201–205
straddle, 208–209
strangle, 205–207
Exposure-mixing strategies, 233–262
collar, 258–262
covered call, 240–248
long diagonal, 235–237
and OTM vs. ATM options, 233–234
protective put, 248–258
short diagonal, 238–240
Exxon, 299n4 (Chapter 5)
F
False precision, 93, 96–97
Fama, Eugene, 42
Fat-tailed distribution, 45
FCFO (see Free cash flow to owners)
“Fight or flight” response, 118
Financial crises, 302n2 (Chapter 11)
Financial leverage:
defined, 285–286
investment vs., 164
and level of investment leverage, 
197–199
Financial statements, xv
Flexibility (with option investing), 20–28
Float, 185
Ford, 103, 272
Forward prices:
adding ranges to, 36–39
calculating, 34–36
defined, 35–36
ranges of exposure and, 50–56
Forward volatility:
choosing forward volatility number, 
156–160
defined, 59–61
and strike–stock price ratio, 67–74
Free cash flow to owners (FCFO):
defined, 82
and drivers of value, 111–112
in joint ventures, 84
and supply-side constraints, 83
Front-month contracts, 270
Fungible assets, 272–273
G
Gains, levered vs. unlevered, 165
Gaussian distribution (see Normal 
distribution)
GDP (gross domestic product), 
104–108
Gillette Razors, 84
GM, 272
Goals, for hedges, 257
“Going long, ” 10, 21
“Going short, ” 21
Golden rule of valuation, 77–89
cash flows generated on behalf of 
owners in, 80–82
and definition of assets, 78–80
and drivers of value, 91–92
and economic life of company, 82–86
and summing cash flows from 
different time periods, 87–89
Google, 84, 127–130, 190
“Greeks, ” xiv, 295n3