Home > Markets > Options > Nassim Taleb: Ask Me Anything

Nassim Taleb: Ask Me Anything

  1. If one is a fool, it is very easy to get fooled.
     
  2. ...I didn't thoroughly read all that, just skimmed it quickly -- But what's the bottom line to all this?
    I hate reading sleepy, boring Question and Answer theory sessions.

    Is he a very successful guy whose ship has come in, or did he crash his own Titanic, o_O
    Reddit is a place for losers. All weird 2-bit stories, and people, arise from there usually,
     
  3. When you read someone such as Taleb, I think you have to keep it in the abstract. ie: events are more random than many perceive. Not, everything in life is random.

    Specifically on trading.... I took a lot from his point that if a trade is not working, you do not need to figure out the why before you get out. Just get out.
     
  4. I don't know...I don't like this guy. He's waffling about his abstract mindfarts, yet all he achieved is writing books and papers.

    He's just like Black/Schools/Merton who sit inside their multi million dollar appartments, musing over their "adventures" with LTCM, although they almost caused a market meltdown.

    I read Black Swan and Antifragility (or at least I tried to) and handed both of them over to the fireplace, because I could no longer take the BS.

    There are people in this industry who made millions although they can barely write their own name. And this moron pulls useless math out of his ass while doing nothing but burning money...

    Sorry guys, but Taleb always makes me fume
     
  5. Yes, he is a best selling author of the Captain Obvious books. When the theory was put to practice, not so much. Apparently he wasn't very proud of his 2 decades performance as a HF manager because he didn't care to share it...

    And no Reddit is not for losers, it is the biggest message board on the internet with 50 million monthly users. Where else can you have a conversation with Taleb or Arnold then on Reddit?
     
  6. that is not my quote.....my post was #5
     
  7. Fooled By Randomness was more readable.....
     
  8. Yeah...it's not that it was difficult to read or to understand what he's trying to say.

    But if your inner response is either "so what?", "Don't you say" or "how is that usefull" after every 5 sentences, you slowly...very slowly feel the rage growing inside you. Untill you end it by burning the book.

    And because I try to be free from prejudice, I bought his second "bestseller"...and ended up burning it, too
     
  9. As an author Taleb has done what he could not do as a trader or mathematician, get people to speak about ( fame & fortune) and quote him. When you are quoted by such notables as Howard Marks and Charlie Munger you have arrived.
     
  10. you have arrived when you have female groupies following you around.
    the only other trader, to my knowledge, in that situation is James Chanos.
     
  11. His approach to option trading actually makes a lot of sense to me.
     
  12. Tks for posting. Very interesting what he said about BRK

    "I think from what I saw that Berkshire is not immune to their own statement. They got involved in financial products and blew up but this is not advertised (I know people who worked there)."
     
  13. Hmm, I get out more from 10 Reddit questions and comments than I get out of a year's worth reading ET.

     
  14. ... Perhaps because you don't understand him? Have you read Dynamic Hedging by him. One of the best options trading and risk management books out there. No, let me correct myself: THE best book on options out there.

    Some of the best Olympic swimming coaches have never been in the top ranks themselves. So what? Same with some top tennis coaches.

     
  15. Thank you for this link.

    This link listed a bunch of his academic studies on tail risks. Tail risk is extremely important in options, so I better pay some attention. Unfortunately, they are not written in lay person language so they are very difficult to understand.

    Regards,
     
  16. Taleb caters to the professional trading crowd. Most retail options punters do not even understand how to trade Gama, neither do they understand skew, higher order risks, managing an options book. As soon as something is above their head many here declare that person a lunatic. Taleb has traded professional money longer than most people here have even known the term trading. I don't know the details why he closed down and neither do I care. Some of his books such as Dynamic Hedging are top notch and a must read for any serious options trader. Aside Sinclair nowhere else is so much valuable information in public domain on options trading than in the Dynamic Hedging book.

    I completely agree with ignoring idiots, Taleb is a quality read, however. Only those with low intellect don't grasp that.

    https://www.amazon.com/gp/aw/d/0471...ic+hedging&dpPl=1&dpID=51WS-+ButKL&ref=plSrch

     
  17. Ok, fine. -- But how does Nassim Taleb's teachings (or anyone else's you seem to praise so much) translate to real world trading performance for you, o_O

    Care to disclose,

    He may be smart academically just like the LTCM guys of the mid/late 90's, but it wasn't a happy ending for neither of them...they both blew up,

    Trading is much more (or less) than just academics. and theories and formulas,
     
  18. Taleb's fund never blew up (I am trying to get my hands on the entire Empirica returns, will post when I get them.) and the fund he is advising is actually still operational and the performance is not pointing to any blow ups either.

    Here some info on the Universa Investments fund that Taleb is advising:

    https://dealbook.nytimes.com/2014/11/24/bear-going-vs-the-bulls-still-profits/?_r=0


     
  19. In your universe there is no room for differences of opinion.
     
  20. taleb has a nice, cushy, well paying tenured job as a professor at a major university in NY, which gives him an opportunity to spout what some consider to be dribble or nonsense. it is irrelevant because he has people skills. influential people like him and welcome him into their circles.

    when it comes to blowups, let's not forget neiderhoffer.
     
  21. It wasn't supposed to, but bleed continuously until there is a market crash. So in years without a crash he probably lost 15-20%, and when the market makes let's say 5-10%, that is a pretty bad under performance.

    https://en.wikipedia.org/wiki/Empirica_Capital

    "One of Empirica's funds, Empirica Kurtosis LLC, was reported to have made a 60% return in 2000 followed by losses in 2001, 2002, and single digit gains in 2003 and 2004 a period when hedge funds posted average returns of 20% and 9% respectively.

    Taleb claimed that he shut down Empirica LLC, in 2005 to become a "writer and a scholar."

    Buying puts doesn't take up much time, it sounds like a BS excuse...Although he had a health care too at that time.
     
  22. Sure there is, but whether someone grasps math or not is a direct function of intellect. Don't blame the messenger.

     
  23. Dribble or nonsense.? Do you even understand the content of his books and papers?

     
  24. That's not his performance metrics at all. You may want to get the figures right. Especially the fund he advises now looks way better than you make it out to be

     
  25. I did not offer my opinion of his work.
     
  26. too vague. if you have numbers with links present them. if not you are like marketsurfer who never presented figures for the advisor he was shilling for.

    whatever happened to marketsurfer. was he banned again?
     
  27. Why couldn't Taleb clean up after 9/11?

    http://www.tavakolistructuredfinance.com/2009/06/talebs-stranded-swan/

    --------------------------------------

    His former partner Mark Spitznagel's HF:

    "When things do go very wrong for the underlying markets, however, they go very right for Universa. As the Standard & Poor’s 500 dropped 38.5% by the end of 2008, the fund increased its investors’ money tenfold. Spitznagel says that investors generally allocate about 1% of an investment portfolio to fund such a “black swan protection protocol."

    https://www.forbes.com/forbes/2011/0627/money-guide-11-spitznagel-black-swan-cnbc-protect-tail.html
     
  28. Actually, I have just posted his former partner's metrics and he says they lose 1% monthly when no crash. But feel free to post Taleb's numbers, they are not available for all the years, you have to pick up clues from here and there.

    And that itself tells you a lot, when he is unwilling to discuss his real life performance. For example the already posted conundrum of why he didn't clean up after 9/11? How does a black swan fund lose money in the year of a black swan?
     

  29. 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.
     
  30. 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.
     
  31. 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...
     
  32. 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.
     
  33. is 2/20 an expiration date? you mean sell EVERY monthly expiration date simultaneously including short dated ones?
     
  34. 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" :)
     
  35. 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.
     
  36. 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, o_O

    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,
     
  37. 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
     
  38. the comparison is that both groups consist of academicians. implied is that their way of thinking leads to poor outcomes.
     
  39. They are in the link I posted earlier. Happy?

     
  40. Taleb's skill set does not only encompass a black swan strategy approach. He ran for many years exotic and vanilla options books. He most definitely understands more about options than anyone on this entire site. It's mind boggling how so many give a career liar like Trump a free pass but shoot down highly intelligent and honest individuals just because of a single failed strategy approach when they have given back so much to the public in terms of knowledge and experience.

     
  41. vague. typical.
    snake oils salesmen use your language. if you have the numbers copy and paste it to your reply. marketsurfer was a master in this deceptive technique.
     
  42. maybe. anyway knowing a subject and making money off it are two different skill sets.
    hemmingway got it right: "those who can do and those who can't teach."
     
  43. Taleb's strategy is 180 degree opposite to what you said.
     
  44. His paper:

    Geman, D., Geman, H. and Taleb, N.N., 2015. "Tail risk constraints and maximum entropy". Entropy, 17, pp.1-14.

    Provided a mathematical proof that his barbell strategy is optimum risk management (as oppose to stress tests and stop losses) for tail risks. I can only understand his logic but not smart enough to follow his math.

    I am not defending him or his math, it is certainly not vague and I post it hopping you can explain the math to me?

    Best to you.
     
  45. thank you for what can be deemed a model reply. unfortunately the math is beyond my pay scale.

    best to you,also.
     
  46. it sounds like the victor neiderhoffer defense. once people like taleb etc. take your money you kiss it goodbye,
    you and nyt readers bring up the name Trump even if irrelevant to the discussion. your obsession makes you look pathetic.
     
  47. Is this you, @Robert Morse? Same word choices. I came across posts by both of you now multiple times that seemed to have typed by the same fingers...

     
  48. The link to his book Silent Risk is within this link. I opened the link and tried to read his book. Well, it is readable only for someone who is studying for his PhD in mathematical finance. I gave up after about page 100. As an options traders I really don't know how it could help me except perhaps this:
    upload_2017-6-30_20-56-31.png
    I certainly like to take advantage of a situation where payoff swamps probability.
     
  49. Is Filthy an author?
    Thanks.
     
  50. You did not have to mention that.

     
  51. what's your business?
     
  52. A business that comprehends Taleb's writings. And a business to understand to shut up on topics I have no frigging clue about.

     
  53. I doubt you understand his math as you have you difficulty simply posting his track record.
    take your own advice.
     
  54. Those two has nothing to do with each other.
     
  55. you are entitled to your opinion that there is no correlation.
     
  56. Above your pay scale again?

     
  57. Last time I checked that academician and practitioner were two different words in dictionary.
     
  58. And? You cannot learn anything from an academician? Cannot learn anything from a clerk or janitor either?

     
  59. how far did I get under your skin?
     
  60. not under my skin just low intellect itches me. Thanks for asking.

     
  61. Perhaps try this one:

    https://seekingalpha.com/article/1975481-book-review-bhansali-tail-risk-hedging


    TAIL RISK HEDGING: Creating Robust Portfolios for Volatile Markets (Professional Finance & Investment) 1st Edition
    by Vineer Bhansali


     
  62. Gama???

    Perhaps he should start a new fund trading again! Why not?
     
  63. i don't mind if you got a deep itch. you have proven it worthy of it with your inability to let things go.
     
  64. like Neiderhoffer he will find people with overblown egos to participate.
     
  65. Then I wish them both very good luck!
     
  66. was too late to correct the spello ;-)

     
  67. Q

    A Wall Street hedging expert said that adding such a bearish bet to a big holding of stocks could erase as much as 8 percent from the value of the portfolio each year.

    Mr. Spitznagel, however, contends that Universa’s hedge costs far less than that. Universa, he said, has been able to buy protection against a stock market crash at a price that makes the firm’s overall strategy viable. But doing so has not been easy, Mr. Spitznagel contended. “You’ve got to be buying when other people are selling it — and that’s very hard to do,” he said.
    UQ

    As an adviser, Taleb would have to tell the public very little about anything that could be useful, if any. imo
     
  68. Pekelo,

    This is your thread and I have a lot of respect for you. So, I propose to bring the discussion back to the merits of his specific strategy.

    I think many here and in the hedge fund industry argued the wrong thing: Yes, hedging tail risk can be expensive and may not be worthwhile. However, Taleb's strategy is not to hedge a portfolio against tails but rather how one can profit from tails? They are 180 degree apart. The two points he made:

    1. Keep most of your assets risk free but use a very small percentage to invest in tail events.

    2. The investment in tail events can be profitable because of the convexity of tail events.

    Perhaps it is extremely difficult to implement successfully because of the rarity of tails and I think most hedge fund cannot afford to not make money for a while waiting for tails or their customers will bolt before they succeed. This reminded me of the "Big Short".

    My question to all you professional option traders is whether what he said has merit? Yes/no? And what are your rationale, or proofs of your answer. This way an amateur mom and pop retail trader like me can learn something from you professionals.

    Cheers.
     
  69. Everything is based on your ability to call, or predict, direction,
    And the more extreme, or volatile, or unexpected a move happens...the more rewarding it can be,

    Otherwise, all those formulas are just about leaving things to total random lotto chance, o_O
    And you know how ambiguous that can be -- and not necessarily play out in your favor,

    The market is not like a blackjack deck shoot...where you can kind of count cards; it's a complete space gamble each day,
    You can run simulations in light years...and never trigger whatever perfect storm scenario you're banking on,

    Things have to happen relatively now -- because that's what trading is. Happen as soon as possible/today/intraday, and repeat...to buildup your nuclear bomb compounded returns,

    Theories and expectations are kind of meaningless in the real trading world; to succeed here...you need to be pro-active and have skill,
    The market and time waits for no one, (to be right, or have all their ducks lined up)
     
  70. You made an excellent point. My profitable trades all came from correct directional calls.

    Another way to state it is: One can profit from tails if one knows when the tails are coming. Easier say than done.

    Regards,
     
  71. This is their real edge. They can buy tails cheaper than others.

    However it should be noted that their publicly stated returns (in news articles and press releases) don't make any sense. Often funds will play with the numerator (by cherry picking the period or segregating a strategy). These guys also play with the denominator. So i would say it's unclear how much they earn or even how much they manage.
     
  72. 1. Do you have this right? I believe his theme is 90% in risk free and 10% in risky portfolio. If one is in already 90% risk-free assets, there is no need to invest in tail events.

    2. Yes. It can be profitable. There is no need to wait for tail events to make money from hedge. All it needs to happen is repricing of risk. Think of this way, if odds from sports book at the beginning of tournament is 1:100. If the team wins first game, then odds are repriced to 1:50 or 1:75. In this case bet already made double the money.
     
  73. 1. He proposed investing xx% in risk free bonds and (1-xx)% in tail events that lose a little at a time but can pay big when tails hit due to "convexity"?

    2. Very interesting comments and very profound. I need to think about this carefully.

    Thank you. I learn something from you.
     
  74. How can a a retail person do that?
     
  75. This still does not seem right. Risk free bonds itself is a insurance and buying tail hedge insurance (which has a negative expected return) on a insurance itself can wipe out any portfolio returns even with a convex tail return.

    Anyway i looked up Mark Spitznagel presentation. He is talking about 90% equity and 10% in safe heaven trades (3% tail hedge in his presentation)

    This is more like it. One needs insurance if that trader is leveraged or high % of portfolio in high beta.

    It can be other way also 90% risk free and rest high beta stocks or calls on index (+ve tail) etc.
     
  76. +1. :thumbsup: This is the type of discussion I appreciate. Make sense.

    But can returns have high probability of profits?

    Regards,
     
  77. ^^
    That depends on probability of profit on 10% of their portfolio.

    CPPI (Constant Protection Portfolio Insurance) follows the same principle. This is mostly used in retirement planning. Here retire protects safe income stream and invests rest on risky portfolio. I don't see any reason not to be useful in trading portfolio also.

    I do have some paper's which back tested this strategy. But it is dated, SPX has gangbuster return after this paper. I will look for it probably and post tomorrow.
     
  78. No, all of NNT's more recent quasi-philosophical stuff doesn't have merit...

    I would say that what he used to write a long time ago, when he had some integrity, was worthwhile.
     
  79. That's the art.
     
  80. Can you do the same?

    Not trying to challenge you, just want to know if they are unique.

    Regards,
     

  81. Taleb is a smart guy , but apparently has never absorbed the one truth about markets.

    Timing is everything.

    Except for the other truth that stealing from the public is also a good way to make money.
     
  82. My guess is the knowledgeable ones like Buffett wisely going away before crash through keeping maximum cash, while some brave ones would still want to dive in the markets for making good money!




    November 6 2016

    Warren Buffett is sitting on more cash than ever, almost $US85 billion of it
    http://www.smh.com.au/business/mark...lmost-us85-billion-of-it-20161106-gsj0nr.html
     
  83. http://www.etf.com/publications/jou...les/23019-risk-budget-indexes.html?nopaging=1

    Main criterion of CPPI and modified CPPI in this case is protection of capital. This is similar to other tail hedge strategies but much cheaper.
     
  84. So he missed a 14% rally?
     
  85. AFAIK, he may be wrong for that position at that time by losing opportunity, but people can see his investment style, willing to keep a lot of cash, rather than any smart hedging.

    His cash can be very useful if any company later requires his help of cash, just like the banks historically.

    Much much better than merely 14%!

    http://www.marketwatch.com/story/wa...s-5-billion-bet-on-bank-of-america-2017-06-30

    How Buffett is set to make a cool $12 billion profit on a Bank of America wager
    By Tomi Kilgore

    Published: July 1, 2017

    700 million Bank of America shares would be worth $17 billion at current prices, and make Buffett the largest shareholder

    [​IMG]

    [​IMG]
     


  86. Berkshires Returns (as measured by Book Value Per Share) are up 110% since Jan 1, 2010. The SPX price index is up 111%. Berkshire's Book Value will be based solely on earnings growth and accumulation. The SPX return is driven by earnings growth, earnings accumulation and several turns of multiple expansion. Berkshires Stock is up 150% over the same period. So with 85 billion in cash he's still doing better than the SPX.
     
  87. No I can't. The only way to do it is to predict through models when a crash is extremely unlikely to happen (and not buy tails then) or to shift pnl around in the distribution (take extreme losses at -5% to fund massive gains at -10%).

    Like I said before, I think their returns are suspect and I would wager institutions only invest with them because they have done a good job of marketing themselves as the "hedge" to their hedgefund portfolio.
     
  88. I guess another good reason that Berkshire holds so much cash is because there were a lot of fairly cheap options with the banks shares when buying their stocks.

    Just unsure whether those options are still pending for exercise.

    That means if the banks he owns options can perform better than SPX, his performance now should be better than the SPX, while still holding a lot of cash that could be later used for exercising the options if he wishes to.

    Unless the markets offer him other better opportunities than those banks options he now owns.

    The picture of SPX outperforming Berkshire because holding too much cash can be quite incomplete. Even the SPX looks like outperforming all the banks he own. Don't forget the bank options were acquired at fairly cheap cost at prices few years ago.


    Holding cash+options VS holding 100% stocks

    http://www.nasdaq.com/article/buffetts-strategy-to-make-millions-without-buying-stock-cm466409
    Buffett's Strategy To Make Millions Without Buying Stock
    April 17, 2015,
     
  89. Quite irrelevant since the time frame in question was since last November... You might as well quote his performance from the 70s...

    For OddTrader, if Buffett owns BoA, that is not a cash position...
     
  90. From Sep 30th, 2016 to Mar 30th 2017:

    BRK/A book value increased 8.7%
    SPX price appreciation 8.9%
    BRK/A stock 15.5%
     

  91. Actually I know very little about buffett or birkshire. The search I did today showed he used to sell a lot of puts to earn money. That's a good reason why he needs to keep a lot of cash. Or the cash position, besides holding stocks, could be generated from selling puts. As well as a cash as hedge for the short puts,against his inventory of stocks. Disregarding for now the call options on banks. I wouldn't suggest his overall portfolio could be just a simple position, as discussed so far in this thread.

    Have to sign off now. So long!
     
  92. BRK is a stock right? Owning a stock is not a cash position... If he moved large amount of his investments into cash, those greenbacks weren't earning him 14% since November...

    Anyhow, this thread is about Taleb not Buffet... That being said, if the market drops 30% tomorrow, then Buffet is going to be right with his large cast stack...
     
  93. Well you made a comment about how he missed the performance of the last 8 or so months because of this cash position. And my comment was that he didn't. The book value of his stock went up in lockstep with the market. That bookvalue includes his public holdings, private holdings, and cash positions (which as you and OddTrader pointed out is quite large).

    And to bring it back to Taleb. He's a pretentious bullshitter while Warren Buffet's track record is about as public as one can be.
     
  94. ??? Perhaps you can kindly share with us the link.

    Maybe they were referring to his insurance company selling insurance and consider those as puts?
     
  95. For anyone lazy who doesn't do online search:

    Update on The Warren Buffett Put Trades - CBOE
    www.cboe.com/.../options.../update-on-the-warren-buffett-put-trades - Cached
    25 Feb 2017 ... While doing research for this project I came across a discussion of a handful of index put options that Berkshire Hathaway had sold between ...

    Naked Short Put Options - Warren Buffett's Little Secret - GuruFocus ...
    https://www.gurufocus.com/.../naked-short-put-options--warren-buffetts-little-secret - Cached
    23 Apr 2014 ... The strategy Buffett uses is shorting put options. As a general note, a put option gives the buyer the option to sell the underlying stock at a certain price on a certain date. Consider a put option with an exercise price of $10 and an expiration date in 30 days.

    Be Like Warren Buffett: Sell Put Options - Forbes
    https://www.forbes.com/.../be-like-warren-buffett-sell-put-options/ - Cached
    18 Jul 2012 ... Profit from other investors' anxieties. Sell them overpriced insurance.

    [PDF] buffett's puts: what are the risks? - FT Alphaville
    https://ftalphaville.ft.com/files/2014/.../Buffett-Puts-Jan-2014-2.pdf?... - Cached
    ren Buffett's Berkshire Hathaway during the 2004–2008 period. Once more, the. Sage of Omaha chose to sell sizable amounts of put options on the S&P 500,.

    Warren Buffett's $5 Billion Dollar Options Trading Strategy That ...
    https://optionalpha.com/warren-buffett-options-trading-strategy-19655.html - Cached
    5 Sep 2016 ... What if I told you that Warren Buffett's options trading strategy should net ... Everyone ignores the 50,000 short put options he sold on KO or the ...

    The Warren Buffett Approach to Selling Puts
    www.wyattresearch.com/.../warren-buffett-approach-to-selling-puts/ - Cached
    7 Mar 2017 ... Warren Buffett and Puts on Coca-Cola. ... As a result, he sold roughly 5 million put options at the $35 put strike. If the beverage behemoth fell to $35, the option buyers, otherwise known as the counter-party, would “put” their shares to him for $35.

    Trading Put Options With Buffett | Seeking Alpha
    seekingalpha.com/.../66749-trading-put-options-with-buffett - Cached
    2 Mar 2008 ... The second category of contracts involves various put options we have sold on four stock indices (the S&P 500 plus three foreign indices).

    Warren Buffett's Comments on Option Investing - Morningstar
    news.morningstar.com/articlenet/article.aspx?id... - Cached - Similar
    3 Apr 2009 ... In developing our options research methodology, we have taken ... of mass destruction," Buffett has been writing long-dated put options on ...

    Warren Buffett Made $1.2 Billion On Financial Weapons Of Mass ...
    https://www.businessinsider.com.au/warren-buffett-q1-equity-index-puts-2013-5
    4 May 2013 ... The company run by Warren Buffett earned $3.78 billion or $2,302 per ... In case you forgot,

    Berkshire had sold put options on the S&P 500, ...
    How Value Investors Use Put Options to Increase Their Returns
    fifthperson.com/how-value-investors-use-put-options-to-increase-their-returns/ - Cached - Similar
    4 Apr 2015 ... If you buy a put option, it gives you the option to sell a stock at a certain price ( strike ... Buffett sold nearly 5.5 million put options for BNI in 2008.
     
  96. Sorry but that was a tiny fraction of his investment. I was aware of it from reading his annual reports but not aware his major profits were from selling puts.
     
  97. https://en.wikipedia.org/wiki/Constant_proportion_portfolio_insurance

    https://web.archive.org/web/20051219134848/http://www.productinnovations.co.uk/knowledge/CPPI.pdf
    https://web.archive.org/web/https://files.nyu.edu/yr366/public/CPPI.doc



    highlights CDS, high yield CDS, short term way OTM puts

    Of these, way OTM puts are available to retail traders.
     
  98. taleb: makes more money selling books than trading
     
  99. Just curious, where did you get that info? I like to find that out or read that myself.

    Thanks.
     
  100. He shut down his fund in 2001. Mark Spitz does the trading. Taleb is an adviser and pitchman. The OTM tail hedge strategy does not work well anyway, which is why he is constantly trying to raise money and promote the strategy (why would someone promote something so aggressively if it were good instead of doing it themselves). In flat markets a OTM tail hedged SPX portfolio loses 10% a year. The skew is too steep on OTM puts. decays too much. That's not to say selling the puts is a smart idea either but hedging is a major cash burner.
     
  101. Thanks for the comments.

    So, he bought OTM tails as a hedge? Or he bought OTM tails waiting for a big win? The first means he own SPX and bought OTM puts to hedge, the second means he did not own SPX, only risk free assets and bought OTM puts waiting for a big payout? I think they are different animals.

    Can you clarify? Thank you.
     
  102. there are two versions of his strategy: put $ in short-duration bonds and put 1-2% in OTM puts. The second is to put $ in SPX and the 1-2% in OTM puts.

    The former IMHO is better if the yield is enough to offset the decay, which it almost never is.
     
  103. Anyone remember Taleb on CNBC suggesting people should take 1% of their net worth and buy deep OTM 10y bond puts each month. "It is guaranteed to make money sooner or later because the Dollar will crater and inflation will go through the roof". That was in 2010.

    Taleb is one of the worst snakeoil salesmen.
     
  104. The best is when his response to criticism is; hey I am making money out of this and you are not. You know, instead of revealing performance numbers...
     
  105. What was the duration of his puts? I want to do some backtest to test thing out and see if he is full of it or there are regions where it may work?

    Thanks.
     
  106. The duration is 60-80 days. There is a post here showing the backtest using TOS thinkback . It did well in august 2015 but badly every other time of the year.

    http://greyenlightenment.com/does-tail-hedging-work-it-depends

    OTM SPX puts decay insanely fast due to very high skew . SPX OTM calls also decay very fast. The conditions that made the method work well in 2015 have never been repeated in the past 8 years of the bull market.
     
  107. It's a well known story, he was selling 10-15 year ATM puts on major indices. Some of it was in vanilla form and some of it was on a basket of international indices that were crossed into USD.
    Just like other long dated vol sellers (e.g. HOOP) those are sophisticated trades. In this case, a lot of the pick up came from financing arbitrage since at the time he was not posting margin (and a lot of dealers neglected this fact) and the structures where well thought through.
     
  108. I think those trades were actually genius, in a whole variety of ways...
     
  109. Well, they looked like a pretty poor idea in November 2008 (a year after inception), especially the SPX/SX5E/NKY worst-of basket :) at that moment it certainly looked like a lose-lose situation for both Berkshire and the dealers...
     
  110. Yeah, although even then I thought they waz genius...
     
  111. I knew that specific case but not aware BRK made most of their profit selling puts then and now as he/she said?
     
  112. Well, it was a good trade at the time, but with the change in their margin agreements that ship has sailed (their 10y CDS is with 90 handle at the moment anyway).
     
  113. Yeah, the trade has run its course, it would seem...
     
  114. Dude, do you check your bbg messages? :)
     
  115. I thought they were 100-year options. The counterparty is a fool, that's for sure. Even Taleb in the AMA says he sells ATM options.
     
  116. I have first-hand knowledge of these trades :)
    No, the maturities were reasonable, from 10-15, though the sizes were scary. Counterparties where fools for other reasons. Unlike a few other famous option trades (like the MS corporate option trade), these were easily hedged and vol risk was laid off (there usually is a fair amount of demand for long dated vol, mostly by insurance companies). However, most dealers did not take into account a garden variety of risks that were introduced by the combination of non-margined nature of the trade and the really large sizes . That's where it got hairy.
     
  117. how much leverage was he using? BRK is pretty big
     
  118. I think the total notional was maybe around 30 yards spread across 15-20 dealers. It's impossible to translate that into anything like a leverage number because the firm itself is so correlated to the underlying.
     
  119. I do!
     
  120. Oh, so you are ignoring me specifically :(
     
  121. Hell, no... I didn't see nuthink, officer, I swears!
     
  122. I don't see anything from you or anyone who could be you in disguise, mate...
     
  123. %%
    LOL; maybe a paraphrase, more so than a quote , but dont really know LOL:caution::cool:
     
  124. Let's see, if options are fairly priced, then neither buyers nor sellers on average have any advantage. Both will lose money after commissions and slippage.

    So if options are fairly priced, Taleb will at most breakeven unless the tails are way underpriced since he and his associates mostly hedged the tails (or bought tails?).

    Have anyone here done any tail analysis to determine that his method won't work because after 1987, 1997, 2000 and 2008, tail events are priced in?

    Thanks.
     
  125. Its been a few years since I read his book but I think the whole premise was that tail events are more common than the market thinks. He used a bunch of fancy words and math but I remember thinking that was all he was really saying. Maybe I misunderstood...
     
  126. Interesting you said that. I read his books, lots of self promotion and rants but no quantitative discussions or results, so not sure how good is his method.

    Don't think he quantified the tail probabilities, instead said they were not quantifiable. Is he right or are the market/others more right?
     
  127. I have no idea. Not a question that can be answered imo.
     
  128. it does not work because:

    skew on OTM puts is too steep (this makes options decay too fast and too expensive)

    interest rates are too low (this makes stock more attractive)

    excluding 1987, the expected value of put buying strategy is negative . Because this method constantly loses money, there may come a point where you may never be able to recover, even if there is another crash.

    When the market falls, even just 2-4%, all IVs get ratcheted up, which means the method becomes much less profitable than it already is .
     
  129. %%
    NOT exactly done what you asked , IronChief,but very closely related to that. Enjoy study of insurance[ risk transfer]+ insurance contracts, which can help- in trading-investing. Like my banker dad warned me as a kid ''accidents do NOT just happen ,son --they are CAUSED'' . Great point /warning thru my banker dad!!==================================:cool:
     

  130.  
  131. What is Nassib Taleb's investment performance since 2009, given that many prominent hedge fund managers seem to have faltered in this bull market?
     
  132. he writes books
     
  133. An investment writer who wants to be taken seriously should also have a good investment record. I hate to read investment books that sound like a summary of what is written by other writers. A good writer needs to write original stuff. Only those who invest on their own can write original stuff because you need unique experience to do that.
     
  134. I recommend all traders understand what a black swan is and what Taleb said about them (and us).

    But I found his writing style overbearing, superior and arrogant, to the point where I'll never read anything further he has written. I truly believe he only writes so he can demonstrate he is smarter than the people around him. He does not write as an iterative process as part of the development of a line of thinking, nor to help traders or investors.

    OK, it might be that he IS smarter than the people around him, but I don't want to be the leg he humps up against.
     
  135. I'll bet there are a thousand quants in Wall Street who are smarter than taleb, but few who are better at self promotion.
     
  136.  
  137. When I read someone with the "style" of NT, I try to just to take one or two points away from it. Nothing more.

    One I took was that when faced with a loss, you do not need to know right then WHY it happened, just admit that it had happened and your rational for being in the position did not work this time, and GET OUT.
     

  138. On losses I agree. The old advice, "Nobody ever went broke taking profits" should be changed now and forever to "Nobody ever went broke cutting losers early".

    On NT, I 'm sure you have a higher tolerance level than I do. I can't read anything more by this man. If he cared what I think I'm sure he'd have a very sharp, superior and personal comment in reply.
     

  139. The use of aircraft as weapons on 9/11 could be a Black Swan as defined by NT but the market itself was already in a downtrend. From that point of view, the subsequent drop in the Dow etc. was a downtrend continuation, and nobody should have been surprised that price went further down. That particular event and type of event was obviously a surprise, but it is part and parcel of downtrends that some event will occur that has a further negative effect on price. The reverse for uptrends as its also possible to have a positive Black Swan
     
  140. I was thinking about Taleb all last week and today while trading. This is not Black Swan by any stretch of the imagination, but traders that practice his method had a good payout last week and today.