Hedge fund guy here. I actually met NNT, fun character. Irreverent as always.<p>He was talking exactly about this strategy when he came in. The thing is, trading often presents you with a tough choice:<p>- Do something that on most days makes a bit of money, but sometimes creates big losses.<p>- Do something that on most days loses a bit of money, but sometimes gives you a big payday.<p>Your problem is then what to do. If you've decided that you want to wait for the big payday, how are you going to stay in business until your ticket comes in? How do you keep your investors faithful until then? This is the actual skill in this trade, btw.<p>If you're wondering about taking the other side, the trope is that you get an even bigger job after you get fired for losing a huge amount of money in an "unforeseen event".
It's definitely the case that the truth seems quite different from the marketing speak. For example, NNT was constantly in the news during the 2008 financial crisis pontificating about this and that and yet his fund was far from the best performer during that time even though you'd think that sort of meltdown would be ideal for his supposed crash put strategy.<p>As always do your own research before you actually put any money into anything.
<i>> Taleb has argued that our increasingly unstable world is the paradoxical result of humankind’s efforts to control it with technology, quantitative models, and ubiquitous just-in-time optimization, resulting in an ever-more-complex, human-built, fragile society susceptible to shocks. Extreme events “are necessarily increasing as a result of complexity, interdependence between parts, globalization and the beastly thing called ‘efficiency’ that makes people now sail too close to the wind,” he wrote in his 2012 book “Antifragile.”</i><p>When the market can respond to events faster, efficiency increases. But, as anyone who's done any synthesizer can tell you, if you have faster feedback loops, you also increase the potential amount of resonance in the system.<p>The market is a highly interrelated graph of feedback loops. As those get faster and with less damping, we should expect wilder and wilder oscillations.
> Adapted from “Chaos Kings: How Wall Street Traders Make Billions in the New Age of Crisis” by The Wall Street Journal’s Scott Patterson, to be published on June 6 by Scribner.<p>TL;DR Black swan events happen. Some hedge funds specialize in them. Book advertisement.
>The stock market was crashing.
>He had no idea why. No one did<p>That's because some of the largest hedge funds had invested at capacity and retail investors had huge call volume. The market always has a contrarian approach.<p>Currently the SPX is on a ripping bull market that's because most of the retail is short. It started with the one word tweet by Michael Burry "sell" which caused retail to pile on shorts. The current market is awfully bearish and SPX bull market is roaring even if inflation came in higher than expected and NFP was twice the consensus.<p>The bull market beatings will continue till the short sellers morale improves.<p>Markets will remain irrational longer than you can remain solvent.
Any other sources that go into more technical details how those black swan funds work ?<p>Is there a timed protocol they use to buy those options, or do they just buy when their gut tells them ?