272  •   The Intelligent Option Investor
It is important to realize that the fact that options are usually 
efficiently priced in the short term does not prevent us from transacting 
in short-tenor options. In fact, some strategies discussed in Part III are 
actually more attractive when an investor uses shorter-tenor options or 
combines short- and long-tenor options into a single strategy.
Hopefully, the distinction between avoiding short-tenor option 
strategies and making long-term investments in short-tenor options is 
clear after reading through Part III.
Fungible Underlying Assets
Again, returning for a moment to the foundation of the BSM, the scholars built 
their mathematical models by studying short-term agricultural commodity 
markets. A commodity is, by definition, a fungible or interchangeable asset; 
one bushel of corn of a certain quality rating is completely indistinguishable 
from any other bushel of corn of the same quality rating.
Stocks, on the other hand, are idiosyncratic assets. They are intangible 
markers of value for incredibly complex systems called companies, no two 
of which is exactly alike (e.g., GM and Ford—the pair that illustrates the 
idea of “paired” investments in many people’s minds—are both American 
car companies, but as operating entities, they have some significant differ-
ences. For example, GM has a much larger presence in China and has a 
different capital and governance structure since going bankrupt than Ford, 
which avoided bankruptcy during the mortgage crisis).
The academics who built the BSM were not hesitant to apply a model 
that would value idiosyncratic assets such as stocks because they had as-
sumed from the start that financial markets are efficient—meaning that 
every idiosyncratic feature for a given stock was already fully “priced in” 
by the market. This allowed them to overlook the complexity of individual 
companies and treat them as interchangeable, homogeneous entities.
The BSM, then, did not value idiosyncratic, multidimensional 
companies; rather, it valued single-dimensional entities that the scholars 
assumed had already been “standardized” or commoditized in some sense 
by the communal wisdom of the markets. Y ou will see in the next sec-
tion that the broad, implicit assumption by option market participants 
that markets are efficient actually brings about the greatest opportunity