34 lines
2.1 KiB
Plaintext
34 lines
2.1 KiB
Plaintext
Notes • 297
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this would, in turn, imply an 87 percent chance of being higher than
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$40 in a year.
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3. Tenor is just a specialty word used for options and bonds to mean the
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remaining time before expiration/maturity. We will see later that op-
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tion tenors usually range from one month to one year and that special
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long-term options have tenors of several years.
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4. We’re not doing any advanced math to figure this out. We’re just eye-
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balling the area of the exposure range within the cone in this diagram
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and recalling that the area within the cone of the $60 strike, one-year
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option was about the same.
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5. In other words, in this style of trading, people are anchoring on recent
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implied volatilities—rather than on recent statistical volatilities—to
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predict future implied volatilities.
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6. Note that even though this option is now ITM, we did not pay for any
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intrinsic value when we bought the option. As such, we are shading the
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entire range of exposure in green.
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Chapter 4
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1. The “capital” we have discussed so far is strategic capital. There is an-
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other form of tactical capital that is vital to companies, termed working
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capital. Working capital consists of the short-term assets essential for
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running a business (e.g., inventory and accounts receivables) less the
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short-term liabilities accrued during the course of running the busi-
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ness (e.g., accounts payable). Working capital is tactical in the sense
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that it is needed for day-to-day operation of the business. A company
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may have the most wonderful productive assets in the world, but if it
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does not have the money to buy the inventory of raw materials that will
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allow it to produce its widgets, it will not be able to generate revenues
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because it will not be able to produce anything.
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2. The law of large numbers is actually a law of statistics, but when most
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people in the investing world use this phrase, it is the colloquial version
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to which they are referring.
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3. Apple Computer, for instance, was a specialized maker of computers
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mainly used by designers and artists in the late 1990s. Through some |