Anti-Fragile Trader

The Anti-Fragile Trader is someone that puts on very small position sizes in low probability trades, but shifts huge amounts of risk to the trader on the other side of the trade. The methodology of the anti-fragile trader is to bet on the eventual blowup of the traders making high risk trades for a small premium.

The favorite tool of the Anti-Fragile Trader is the out-of-the-money option contract. For pennies on the dollar, they can control huge amounts of assets. While they expire worthless the majority of the time, when a random Black Swan event hits the market affecting the option contract, they can return thousands of percent on capital at risk, and makeup for all the past losses.

The creator of the anti-fragile concept, Nassim Nicholas Taleb, traded long option strangles, betting on both directions to capture any huge trend event up or down. A company being purchased and rocketing up, or a disaster and a company stock sent crashing, was hugely profitable for Taleb. He also bought option contracts on futures markets. The key is very tiny bets on these trades versus total account equity. Tiny losses and tremendous wins was what made the system profitable.

Anti-fragile traders grow stronger through losing trades by learning instead of quitting. Rough market environments don’t break them; it educates them on what to do different in the future. A trader who is mentally anti-fragile has no doubt that they will be a successful trader, and that only time separates them from their goal.

The anti-fragile trader wins in volatile markets and random Black Swan events, outside the bell curve of normal price movements. Taleb made a fortune in the Black Monday crash of 1987, and many other instances over the past 25 years.

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