You know, I'd rather read Sinclair to be honest. His stuff is practical and his models are robust/uses models in a robust way. By "professionals" do you mean those guys who work for big banks, never risk their own money and juggle a massively overleveraged portfolio on the basis of a wonky model that disintegrates with the slightest change of correlations? If yes, Taleb is the perfect read for them...when they blow up, they just look for another job. I trade my own money and prefer Filthy.
Taleb's concepts can be summarized as : buy Powerball tickets, and never short them. If you can know when Pball jackpot is hitting you can cut your costs and improve your odds greatly.
I think trying to TIME Taleb's strategy works better, than just running it all the time. After a big crash, we are usually OK for a few years at least (someone can run the stats), so I wouldn't run the put buying for at least 2-3 years after a crash. Right now we have been due for one, and I think we will have one in this year, so let's buy some puts.... Also seasonality could be thrown into the picture, when let's say between Sept-Nov one is buying more puts than usual...
Well, I'm not a nobel prize winner but the problem with Talebs Black Swan approach is the fact that he doesn't discount for the opportunity cost of low frequency events. In other words, if you look at a distribution with zero alpha and add a single outlier which is the entire alpha, missing to trade this outlier kills your return. Even if the powerball had positive expectancy you can play it twice a week...and with odds of 1 to 6 billion, you simply don't live long enough to take advantage of the law large numbers. So, you just don't open a HF get long tails and wait for the big bang once in a couple of years, even though you are correct that the outliers aren't priced in. Inconsistent returns don't scale. There is political, regulatory and overall economic risk to be considered. What do you do when you hit a homerun and cannot cash in because your counterparty defaulted? Look at the guys who do it the other way around. They have 70 IQ and sell OTM puts every month for 2/20 and when they inevitably blow up, they open shop under a different name. So from a scientific perspective, Taleb is correct...but the idiots have success and he doesn't.
is 2/20 an expiration date? you mean sell EVERY monthly expiration date simultaneously including short dated ones?
no, it's the split. 2% management fee and 20% profit split. Selling OTM premium works like a charm...untill it doesn't. Create a website with lots of word shells like "quantitative models" put some lipstick on a monkey and put it behind your trading station...just in case investors come to visit while you are playing golf or enjoy a day at the beach. Sell OTM premium, roll down and out and add size when the market goes against you. Collect AUM by posting steady returns and enjoy the fees as long as they last. When the crash comes, blame others and start all over again. This sells much better than "Gimme your moneys, I hope we get a homerun in the next 5 years...or not"
Taleb's philosophy and trading style is pretty much the opposite of LTCM's. Better know your topic a little better before making such a comparison.
I never said Taleb Nassim and LTCM deployed the same strategy, I just said they are considered very smart people academically, but they both eventually blew up or got nowhere, But in essence, both Taleb Nassim and LTCM...are virtually the same -- sure they operate on opposite ends of the spectrum, but the principle is kind of the same, One picks up small coins consistently...and the other is hoping for a relatively rare doomsday to make bank, Now you can debate which strategy is better till the end of time, but it won't matter much, Because trading the market is partly an art and skill given any time era or period in history, All that matters...at the end of the trading day is the bottom line...how you fared or tallied up when the sun comes down,
Except this approach can be part of a multi-strategy approach. It can also be ramped up when risks (as judged by the portfolio manager) are higher than usual and toned down when risks are judged to be lower
the comparison is that both groups consist of academicians. implied is that their way of thinking leads to poor outcomes.