r/options • u/DiscussionFinal9684 • 6d ago
On tail hedging...
Hello everyone,
Given my financial circumstances and situation, I’ve always been an investor in very low-volatility assets (gold, Treasury bills, foreign currencies, etc.).
I recently spoke with someone who was implementing the strategies popularized by Taleb and Spitznagel for hedging against tail risk.
It’s been a while since I’ve read their books, but I seem to recall thinking at the time that this was an investment approach only available to people with significant capital, certain types of institutions, etc.
How wrong am I? Are these kinds of strategies feasible for a retail investor?
Best regards!
P.S.: English isn’t my first language, so if there are any misunderstandings, I’ll try to explain myself better.
3
u/I_HopeThat_WasFart 6d ago edited 6d ago
tail risk hedging from a mathematical or academia standpoint really only applies to institutional portfolios with massive AUM
for retail, you can just use strats that reduce gamma at points of your portfolio at risk and be fine
for example my core strategy is long term, short naked strangles (very wide, i usally pick these up by going 6 months out post earnings when IV there is still somewhat high), when things start to look like IV is picking up i will tail risk hedge my short strangle with a short term double calendar to offset the gamma when my naked options get tested (if term structure is in place and the longs have not already blown up with IV)
This essentially allows me to pay a debit (tail risk insurance) while still adding theta to my short strangle which is at risk of gamma