Taleb vs Assness on tail hedging and risk parity

btw, let's not talk about theory. Let's look at the numbers. Over the last 50 years, you would have lost your shirtS (probably your whole wardrobe and your wife's wardrobe) if you kept buying "cheap" options. These losses are consistent and overwhelming. that's why institutional investors don't buy "cheap" options...not because of their business model, but because it's a bad strategy. If you're "smart" about the buying of "cheap" options, you would have still lost a boatload.

the future might be different, but it also might not...
 
guowei58 said:
btw, let's not talk about theory. Let's look at the numbers. Over the last 50 years, you would have lost your shirtS (probably your whole wardrobe and your wife's wardrobe) if you kept buying "cheap" options. These losses are consistent and overwhelming. that's why institutional investors don't buy "cheap" options...not because of their business model, but because it's a bad strategy. If you're "smart" about the buying of "cheap" options, you would have still lost a boatload.

the future might be different, but it also might not...
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The obvious may not be so obvious. If you mechanically bought "cheap" options, you would net zero or worse in the long run. Just like when I mechanically sold "cheap" options, I netted zero or worse in the long run (6 months). When I didn't mechanically sell, I was doing fine. Like everything in life, the devil is in the details.

Taleb is too smart to do the obvious: Mechanically buying tails to catch a black swan here and there. Even a newbie (me) knows better. My humble suggestion is we do some Second-Level thinking rather than stating the obvious.

Peace.
 
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ironchef said:
The obvious may not be so obvious. If you mechanically bought "cheap" options, you would net zero or worse in the long run. Just like when I mechanically sold "cheap" options, I netted zero or worse in the long run (6 months). When I didn't mechanically sell, I was doing fine. Like everything in life, the devil is in the details.

Taleb is too smart to do the obvious: Mechanically buying tails to catch a black swan here and there. Even a newbie (me) knows better. My humble suggestion is we do some Second-Level thinking rather than stating the obvious.

Peace.
More...

yeah Taleb wasn't just mechanically buying vol, he was picking his spots. but even experts like him and his associates couldn't make money over the long run. you just lose less than if you mechanically buy vol. have you seen their returns? not great at all.

I'm not sure what is obvious and what is not, but i guess that's what makes the market interesting

If you really think your system can make money buying vol over the long run, i suggest you do the inverse and sell vol until your system tells you to stop. With proper sizing, you would be a very wealthy man even taking into account the occasional blowups. but i'm sure Taleb not doing that because "Taleb is too smart to do the obvious"...
 
guowei58 said:
yeah Taleb wasn't just mechanically buying vol, he was picking his spots. but even experts like him and his associates couldn't make money over the long run. you just lose less than if you mechanically buy vol. have you seen their returns? not great at all.

I'm not sure what is obvious and what is not, but i guess that's what makes the market interesting

If you really think your system can make money buying vol over the long run, i suggest you do the inverse and sell vol until your system tells you to stop. With proper sizing, you would be a very wealthy man even taking into account the occasional blowups. but i'm sure Taleb not doing that because "Taleb is too smart to do the obvious"...
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If my "system" can "just print money" I won't be here wasting my time, reading all these posts trying to get smarter and trying to improve.

On the other hand, I am lucky that my trading "career" started back in 2010 just as this bull market kicked in. If I started any other time, I would have to go back and ask my former boss to give me back my day job.

Have a good day.
 
guowei58 said:
yeah Taleb wasn't just mechanically buying vol, he was picking his spots. but even experts like him and his associates couldn't make money over the long run. you just lose less than if you mechanically buy vol. have you seen their returns? not great at all.

I'm not sure what is obvious and what is not, but i guess that's what makes the market interesting

If you really think your system can make money buying vol over the long run, i suggest you do the inverse and sell vol until your system tells you to stop. With proper sizing, you would be a very wealthy man even taking into account the occasional blowups. but i'm sure Taleb not doing that because "Taleb is too smart to do the obvious"...
More...
Another thought about Taleb's Black Swans.

Most people think of Black Swans as market crashes. I look at Black Swan as tail risks. I think there are significant differences. :)
 
ironchef said:
Another thought about Taleb's Black Swans.

Most people think of Black Swans as market crashes. I look at Black Swan as tail risks. I think there are significant differences. :)
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To your point, I think the Nasdaq performance over the last several weeks is a tail risk that would have bitten you if you'd been selling calls.
 
I finally had some free time so I read up on Cliff Asness and AQR in Wiki for the first time. He is quite an impressive fellow and I like his thesis on exploiting both value and momentum. I am embarrassed I commented without really knowing his trading thesis. :vomit:

Reading up on him also introduced me to the Fama-French three factor/five factor asset pricing model. For the longest time I was troubled by CAPM and small cap returns. This at least establishes an empirical basis for me to model small caps.

@Daal, thanks a million for creating this thread. I think his approach and Taleb's are not mutually exclusive. Why they argued and not appreciating each other's views is really amusing to this amateur retail.
 
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