What Nassim Taleb Did on Black Monday 1987

let's begin if we can with the 19 yes rewind the tape okay where were you I was what we was doing the first I was at first Boston and I was an option trader and I was trading a lot of things mainly fixed income options and currencies and currency options were extremely inexpensive at a time you have that period for some weird reason particularly in for out of the money option for options that were remote so I had accumulated a few of these I also accumulated a very large amount of out of money options in Treasuries and in short-term fixed income for no other reason than they were much cheaper than I had seen in the past and I was happy buying them so I had a large portfolio of these and I was effectively short volatility people don't fail to understand that I was I would have been harmed by small Lou you see I was set up to be harmed by a small move and gain if the move continues to something very large and and it was a very nice way to earn money if nothing happens lose money is something mild happens and of course make a lot of money if something huge happens and and that kind of position allows you to accumulate a lot of options in the tails so that they walking ahead I'm so no idea what's going on I was hardly looking at stocks focusing on fixed income and then you had to remember during that period stock options were something very artisanal it was a very small market not that many people traded equity option because there was no money there there was no the quiddity know that fixed income off options on the other hand were huge we came out of a big deficit if you recall big inflation in the 70s and in the 80s you had so many bombs outstanding but that was what you did when he wanted to trade if you went into equities it was you know because you couldn't probably couldn't get on they won't let you in on a fixed income floor so that was and we could trade in my department equity options but there was no big volume for us so it was an artisanal thing and later on when I became a bit trader I was taking a sabbatical it wasn't you know it was to become an artisan and have a nice little life you know working my own hours let's sort of like the uber driver of that business you see like a freelance trader and you realize that all freelance traders so in that space fixed-income Equity option so this is why there was no that there was no big we didn't hear big stories then fixed income was very large another thing we remember is that portfolios were very large at the time and it was options were driven mostly by big cover drives like some people selling calls nobody was interested in puts some options so the collapse happens and there was no big liquidity so the action was in currencies in fixed income now at what point during the day did you come to realize what was actually happening at no point when you're trading is like in a battle you see sort of like when I'm on TV when you when I'm on TV I don't know during the episode what's going on it's later on that I realize you know what I said he said we're concentrating so like you're solving a math problem you don't know you don't know he's surrounded but I remember it was a state of heightened concentration I was 30 years younger it was 30 years ago so imagine you're in state of concentration all day and didn't eat that knew something was going on but didn't think about it didn't think about it these terms but you saw prices going down I saw prices going down and they kept going and people were panicking he keeps going and and someone came to me and and and made a remark he said don't they know that six Sigma's are something we don't observe more than once per lifetime I said no the market doesn't know it and I remember that that was a joke the guy was visibly suffering and in his own portfolio and this is what I was concentrating and it's very strange to these things when he concentrated for eight hours and my career I've had six or seven of these like one Saddam invaded Kuwait so I had to go to the office at like 2:00 a.m. and I remember it was a state of concentration for about 1516 hours and and the nose really think about the event in these terms till I took stock laters it's the same thing with with a stock market crash

Channel: Bloomberg Television

Views: 113,160

Keywords: Bloomberg

Id: us3P4aTSR7g

Length: 5min 8sec (308 seconds)

Published: Mon Oct 16 2017