I have loved options trading from the very first time I tried it. While I didn’t exactly know why I liked it so much, I knew there was something particularly special about it but I couldn’t quite put my finger on it. That changed last week when I read a book called The Black Swan by Nassim Taleb.

Exposure to Serendipity – a Television Interview that Became a Black Swan for Me

I had never heard of Nassim prior to this past month when he appeared on television and gave a short interview about the Greek debt crisis and how it related to his description of Black Swan phenomena. I did not catch all of the interview, but I did catch one extremely important comment by him – a comment that resolutely cemented in my mind the investment strategy I had been tinkering with lately. What he said that there was unknown uncertainty in the world, and in particular the stock market – and while that may not seem like the boldest statement ever made what he next said forever changed the way I think about investing. What he said next was that what made those unknowns particularly important was that the returns (positive or negative) on those unknowns were large enough to impact the overall performance of an asset portfolio. In other words, sudden events can produce such large (usually unfavorable) swings in the market that single market or asset events can obliterate decades of returns in a matter of hours. I am sure that if he ever has the mis-fortune of reading this post that he will be horrified that I have referred to watching the television (and in particular a financial news channel) a “black swan” event.

For those of you not familiar with modern portfolio theory, this is equivalent to standing the classic investment portfolio theory (and all of its academics) on its collective ignorant head.

An Options Trading Strategy Suddenly Makes Sense

As I had mentioned before, I had been tinkering with my own investment strategy, attempting to maximize my exposure to positive returns using the minimal amount of capital, all the while keeping the remaining cash in highly liquid/low risk assets. Oddly enough my options trading strategy was working quite well before I read the Black Swan… and now I have some appreciation for why.

If you have read The Black Swan already and haven’t given options trading a try, I highly recommend learning more about it. If capital is a problem, then perhaps binary options are for you.