Taleb -Black Swan on $1,000 per month
- Thread starter drenaud
- Start date
Not that facts matter or anything but his fund is up 8.8% through the end of the first quarter and they are managing close to 6 billion.
http://www.cnbc.com/id/42594829/Black_Swan_Inflation_Fund_Rises_on_Commodities_Trading
The fund has actually done pretty well the last 3 years.
Yeah, he must have learned from his first foray into "black swan protection", which he had to close down after four year, even Sep 11 did not save him. Overall, from what I heard from our IR person, pretty much all tail protection funds did lousy last year, I will get more color after the close.
PS. I am, by no means deriding the strategy of purchasing lotto tickets, it's just you have to generate the cash flow to pay for them somehow.
It's my understanding he trades flys for the most part. They sell ATM juice and buy the wings. They are not suppose to bleed to death. They don't simply buy 5 delta options.
FWIW, they do mention in their marketing material that I've read that their fund is like buying a put on your portfolio. They tell their investors that you want to lose money in this fund as it means you are making money in your other funds. Their suggested allocation is 95% long risk assets and 5% in these fat tail funds.
It's a lot like investing in managed futures. Usually managed futures do very poorly when risk assets are in bull markets but do well when they are in bear markets. So people invest in managed futures with a small portion of their money losing a little every year and then having a nice return like in 2008 to offset losses in other funds. The combined volatility of managed futures with long risk assets is much smoother then without.
I assume these fat tail funds are being sold as an alternative to managed futures. They both serve really the same purpose. Most CTA's I know even sell themselves as look, we lose money most of the time but we will knock it out of the park when your mutual funds are down 50%. People seem to like that.
I, personally, do not like to get involved in anything below 10 delta - definitely not a seller and usually not a buyer. It's not that you can't value them, it's that as a buyer your Sharpe is going to suck, while as a seller you stand a risk of a ruinous loss.
I do think that one can optimize something where you sell ATMF vol and buy wings (probably slightly further out on the expiry land) and make money - you take advantage of both the risk premium and the jump-diffusion nature of the distribution.
4-6 months out for small debit, as in sep 70 puts.
If you really believe there is going to be a black swan this is pretty much as close as you can get to free insurance: http://ftalphaville.ft.com/blog/2011/04/08/541101/the-bernanke-1x2-call-spread/
It'll cost you exactly $0 per month unless you get unlucky and hey, in that case you have saved $1000 per month so w/e right?
Edit: If you insist on needlessly wasting money you buy a lower strike than even money. Will give you more returns but imo the risk:reward is skewed less to your advantage.
It'll cost you exactly $0 per month unless you get unlucky and hey, in that case you have saved $1000 per month so w/e right?
Edit: If you insist on needlessly wasting money you buy a lower strike than even money. Will give you more returns but imo the risk:reward is skewed less to your advantage.
This insurance (selling 1x2 call spreads) ain't free at all...
Well no, obviously it's not "free" because a trade is still a risk exchange so you get a different risk. I was just kidding around a bit, but I stand by the assertion that it's unlikely you will end up paying for it compared to, for example, S&P500 put options or any other long put option position, for which the odds you will end up paying are very high.
By "free" I meant that basically "if nothing happens then you don't lose much if anything (maybe commissions)".
So why not just take 5% of a long portfolio and buy SPY puts?