'Black Swan Events,' such as Russia's invasion of Ukraine, are improbable, unpredictable and catastrophic. A new options trading book by tastytrade's FinancePhoton offers ideas on trading black swan events.
I could only see making this experience of inflation significantly worse, which could have longer term consequences on global economies.
DFX: You came to options trading in an unusual way—talk about experiences that prepared you to understand improbable, unpredictable and catastrophic events, and to trade on themMy first exposure to trading was through video games, in 6th or 7th grade. There’s a game called Runescape and around 2007, they added the Grand Exchange where you could buy and sell items. The price dynamics of these items moved almost exactly like a stock price. You could buy low, sell high, put in limit orders.
I was drawn to options because they have a lot of strategic capacity. When you buy a stock, the stock will either go up or down, you don't really have much control over that probability distribution, over that risk-reward profile. With options, you have much more control over the probability distribution of the trade. You can make money whether the underlying price increases, decreases or stays within a neutral range.
For people thinking about trying options, it's exceptionally important to keep position sizes small. Options are leveraged instruments so their swings are a lot more dramatic than a non-leveraged position; however, leverage is actually really powerful if you know how to use it. For instance, you can get the same risk reward exposure as a stock position with a lot less capital. However, the drawback is that you need to be very mindful of position size and the potential risk of a position.
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