# Buy a tail and wait for it to fatten?



## markrmau (10 May 2006)

There is a very clever cookie in the US who continually buys puts (probably has a more complex strategy though) in the belief the market always underprices the risk of a high sigma event.

I am thinking this might be an appropriate strategy for the aussie market now.

I am thinking that I should wait until the market continues in its merry uptrend and IV's sink. Then buy some longdated XJO puts which are out of the money.

The idea is you continually loose small premiums until the market has a big correction and collect bigtime.


Thoughts?


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## RichKid (10 May 2006)

markrmau said:
			
		

> There is a very clever cookie in the US who continually buys puts (probably has a more complex strategy though) in the belief the market always underprices the risk of a high sigma event.
> 
> I am thinking this might be an appropriate strategy for the aussie market now.
> 
> ...




Sounds similar to averaging down, except this is based on volatility rather than price alone. Does he have deep pockets? Bull trends can last longer than  you expect. Why not follow the trend and cut losses short, call premiums would go up with increased volatility as well.


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## markrmau (10 May 2006)

Finally found it. Have a read of this.

http://www.gladwell.com/pdf/blowingup.pdf


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## money tree (11 May 2006)

the asx has a "bear index". I think they use the same idea. probably safer to do it through their index.


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