Shared by JohnH

Wow, great find Christopher!

This article from The Forex Village contains some rare insight by Taleb on how he approached options trading.

Of all the information in the article, I think one of the biggest takeaways is Taleb’s point about how far out-of-the-money (OTM) options are likely not to be priced accurately.  Human beings created the option pricing formula.  Human beings have a very difficult time perceiving the likelihood of rare (and often catastrophic) events.  Thus, the option pricing formula does not perform so well when assigning values to far OTM options, since these options are attempting to capture the possibility of extremely rare events.  Ultimately, this undervaluing creates the potential for massive gains, like the one Taleb had in 1987.