lose money on a steady basis and then make money in a lumpy way?

Discussion in 'Trading' started by jjk2, Mar 27, 2008.

  1. jjk2



    i recently finished fooled by randomness....i cared little about his historical ramblings, but did pay close attention to his other topics, especially related to market.

    now im listening to audiobook of black swan. its entertaining.

    but this article would pretty much sum up a lot about the author.

    Taleb built an investment strategy based on options trading. It was designed to bulletproof investors against blowups while profiting from rare events. His 20-year trading career has been marked by jackpots (like when he lucked out in trading options during the stock market crash of 1987) followed by long dry spells.

    i wonder how this works? does he continue to purchase far out of the money options everyday? wouldn't you lose everyday and thus these large lump profits be cancelled out ??

    further reading says this yes he is buying otm

    On Sept. 22, 1985, France, Germany, Japan, the U.K. and the U.S. signed the Plaza Accord, an agreement to push down the value of the dollar to shore up the U.S. current account deficit. Taleb was sitting on currency options -- which give investors the right to buy or sell a currency at a specified exchange rate -- that had cost him pennies. The options exploded in value that day.

    "I had no clue what had happened to me,'' he recalls. ``We were lucky. We made a lot of money but by accident.''

    After this fluke, Taleb says he became obsessed with buying out-of-the-money options"
  2. I don't know if this is at all related, but I thought I'd respond as maybe it is some insight.

    I have found over the last few months in intraday futures trading, the only way I have been able to get consistent is to accept a win ratio <40% and shoot for those rare large winners.

    Sort of a combination of getting in at the right place and then holding on to your winner long enough to take advantage of PA that runs far longer than any projections/targets.
  3. jjk2


    that is a very interesting strategy. but im curious as to how much money you are willing to lose from consistent small loses until profiting off the large price movements in your favor.

    but i think i see what you mean, the past few month has been extremely volatile, its actually first time i witness series chaotic events ever since i started trading few years ago. i guess this is the difference between old folks and young. the former have seen things, they know how far and wide the market can go. the young like me only realize through series of blow ups. of course grossly generalized but....

    it is interesting this strategy, as it would ensure protection against most chaotic events that would otherwise render account to zero.