How does Taleb know when to cash out of the puts?

Discussion in 'Strategy Building' started by Pekelo, Nov 22, 2008.

  1. Pekelo

    Pekelo

    His fund bought AIG 25 puts for $1.30 and sold it over $21. I guess that was good timing...


    "Five weeks ago when the S&P 500 was trading around 1200, Universa bought S&P 500 Index put options with a strike price of 850, due to expire late October. They were betting an “unlikely” drop would occur.

    They paid around 90 cents for those options. By Oct. 10, the S&P had dropped 300 points in a month. The options Universa purchased for 90 cents were now trading for $60 each. Universa cashed out of its position around $50, good for a gain of 5455%.

    Universa also paid $1.29 for a put option on the insurance company AIG. They’d be in the money if AIG dipped below $25 a share by September. AIG imploded in a tangle of bad debt and Universa sold the AIG put options for $21 apiece."

    http://seekingalpha.com/article/104974-nassim-taleb-renegade-trader-with-renegade-ideas-that-work
     
    #11     Nov 23, 2008