Taleb's concept of making an (infrequent) killing with options

I'ts been pointed out here that its mostly his money that he is managing i.e. essentially a private investor rather than manager of OPM.

If true then this is a great edge. Those who manage OPM, i.e the overwhelming majority of investor/trader capital including hedgies, could not pursue a black swan strategy even if they explained it to their investors until they were blue in the face!

Its his private investor status that affords him this luxury and allows him to pursue his edge. Light dawns on marble head!

Could you imagine his quartely investor report if he were a traditional hedge fund manger?:

"I am proud to report that we have continued to generate consistent amounts of red ink for the past 10 quarters. We are anticipating a rare gargantuan black ink quarter sometime in the future but we have no idea when. Sit tight"
 
actually, would generate no or little red ink if all he was doing was taking the interest off of 300 mil and buying options with it.

Folks, its not like they have a 15k etrade account and they go and use 100% of it buying the near month SPX 350 puts.

What he is doing is actually a very sound strategy.
 
Asteriod AJ1, discovered in 1996, came within 450,000 Kilometers of the Earth on May 19, 1996. In contrast, the distance to the moon is 400,000 Km.

AJ1 is estimated at about 400-500 meters in size composed of rock and iron. It's mass is estimated at 126.4 x 10^9 kg. To get an idea, this is about 500 times larger than the mass of the meteor that created Meteor Crater in norther Arizona 25,000 years ago.

The velocity of the meteor AJ1 at it's closest approach was about 16,100 meters per second, so the kinetic energy of AJ1 on impact would be about 1.64 x 10^19 joules, or about 300 times greater than the kinetic energy of the meteor that created Meteor Crater. Equivalently, it would release the same energy as two hundred hydrogen bombs exploding simultaneously on impact.

AJ1 has an orbit of four years, so we have to look forward to this thing paying us a visit every four years.

nitro
 
Quote from Diamond Geezer:


Could you imagine his quartely investor report if he were a traditional hedge fund manger?:

"I am proud to report that we have continued to generate consistent amounts of red ink for the past 10 quarters. We are anticipating a rare gargantuan black ink quarter sometime in the future but we have no idea when. Sit tight"
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ROFL
 
Quote from cognitivefun:

Taleb wrote the excellent book Fooled by Randomness. He shows how humans consistently mistake probability with expectation (probability times pay-off percentage).

When you buy very OTM put options, you can get them cheap. They will expire worthless.

But if you keep doing this, there will come a "rare event" that will make you suddenly very well off. The theory is that due to the frailty of the human mind, and the mistaken use of mathematical models, the pay-off will be much larger than your steady losses, and you will make a fortune with options.

The tough thing is to stay with this type of program. Most people would rather make money consistently, or at least most of the time, than lose money consistently but make it in sudden, unpredictable bunches.

Apparently Taleb runs Empirica Capital a hedge fund with $300 million, with this basic idea.
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Darkhorse had a good dark point ;
''dont have to be mechanical to enjoy that freedom''

Nissan Nicholas Talib has a fun brainy book helpful read;
sounds like a brainy helpful plan for him more than me.

Part of its a personality call
to put it simple;
no thanks on a t bill equity curve with lifetime hoping for a killer black swan in a bull market.

To keep putting it simple as an elitetrader put it;
sure plan on buying put buying in a bear market which we are NOT in now.

Even though many rich portfolio managers buy protection puts in a bull market;
agree with the way market makers price deep OTM,
deep cheap for a good reason.


:D
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Divide your merchandise amoung 7
ventures
8 maybe;
for you do not know what disaster may be on the earth.
Solomon, trader king
 
Quote from murray t turtle:


To keep putting it simple as an elitetrader put it;
sure plan on buying put buying in a bear market which we are NOT in now.




Again, not to beat a dead horse, but Taleb is in virtually all markets. People like him trade other theings besides QQQ and TASR.

Are we in a bear or bull market in Silver? In Crude? In Gold? In Eurodollars? In Soybeans? Nikkie? Brazil? Dollar? Euro/Yen?

Etc.

As for not wanting T-Bill gains, well, I'll can say is you trade a 5k account different from a 100k and way different from a million dollar account. As your capital grows, it is imperative that you take more caution to protect. You can recover from blowing up your 5k IB account, but many traders will never be able to recover from blowing up a 100 or 200k account. So 300 million is a whole different animal.


As I mentioned, if I ever got to 1 to 2 million dollar level, I would seriously consider taking half of it and doing exactly what he does and then taking the other half and trading low volatilty Junk Bond and Muni Bond funds.

Best,

Mike
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Quote from highfreq:

That Mav is Taleb's lover; isn't it obvious?
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Actually I'm not a big fan of Taleb but I found his book very interesting. He actually epitomizes most of the things I dislike about option traders.
 
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