Met a chap the other day. He spoke to me about trading models. He said that it wasn’t difficult to develop a strategy that would make small incremental gains consistently over a period of time. Then, he said, it would collapse spectacularly, and you’d get, erm, slaughtered. Look at carry, he said. It did very well for years, and then the markets spooked, he said, and everyone got, erm, murdered. And you know what, he said, because the markets expect to collapse one day, buying protection against that collapse is always more expensive than you think. If you want to make money, he said, you should sell out-of-the-money puts, and you can sit on your profits till you get, erm, buried. By now his face was a spectacle, and he looked like he was running out of synonyms for crash and burn. But no! He went on, getting increasingly animated. … And that’s a strategy that works nicely until you get, erm, cremated, he said. He was quite happy with cremated for he used it a couple of times more. Then he floundered. He ground to a stop.
(From Chaps by Jost A Mon)
