Black Swan Protection Protocol

Chaos Kings: How Wall Street Traders Make Billions in the New Age of Crisis
by Scott Patterson
Published 5 Jun 2023

Ackman, Bill, 1–7, 114, 176 Adhanom, Tedros, 2 Aérospatiale, 84 Allianz Global Investors, 168–69, 260 Allianz SE, 168 Alpha Futures, 42–43, 44 Amaranth Advisors, 68 Amundi Group, 224 Antifragile (Taleb), 12, 16, 32, 143, 190, 192, 207, 218 Aon PLC, 266 Appaloosa Management, 140 AQR Asset Management, 172–77, 227 Arab Spring, 204 Ariane rockets, rupture analysis of, 84, 85, 86, 87, 202 arXiv database, 131, 208 Asian Contagion (1997), 13 Asness, Cliff, 172, 173–74, 176–77, 228–29 Atwood, Margaret, 244 Austrian School of Economics, 120–21, 136 Bachelier, Louis, 74–75 Baggesen, Eric, 153, 157, 158, 159–60 Baldwin, Thomas (Tom), 46–47, 48, 49 Bankers Trust, 55 Bank for International Settlements, 224 Bankman-Fried, Sam, 280–81, 282, 284 Bank of America, 153, 250 Bank of England, 111 Banque de France, 224 Barclays Capital, 127, 128 Baron, Ron, 178 Barron’s, 147, 155, 273 Bar-Yam, Yaneer, 18, 19, 20–23, 36, 164, 193, 196 Bayer, 215 Beckstead, Nick, 283 Bear market fund, 13 Bear Stearns, 98, 261 Bed of Procrustes, The (Taleb), 218 behavioral finance, 79 Bendell, Jem, 245–46, 248 Berenson, Alex, 79–80 Berkshire Hathaway, 2–3, 4, 156 Bernanke, Ben, 34–35, 99, 120, 122 Bezos, Jeff, 104, 124, 281 Biden, Joe, 33–34, 238, 249–50, 251, 255, 280, 285, 287, 290 bitcoin, 105, 179, 280 Black, Fischer, 227–28 Black Monday (1987), 13, 15, 20, 38 Black Swan, The (Taleb), 12, 16, 19, 76, 82, 91, 103–4, 106, 107, 124, 129, 144, 218, 261 Black Swan funds, 24, 113, 130, 134 Black Swan Protection Protocol, 14, 15, 154–55 Black Swan Protection Protocol Fund CalPERS’s investment in, 157–58 global market response to Covid-19 spread and, 12, 14–15 investor initial reaction to, 98–99, 100, 108 Spitznagel’s founding of, 12 success of, 110, 112, 155 trading strategy of, 14, 15, 98–99, 110, 154–55 Black Swans definition of, 13 Empirica’s trading strategy and, 13 global market response to Covid-19 spread as, 14 Lloyd’s of London’s interest in, 266–67 Mandelbrot’s influence on theory of, 76 March 2020 events and, 14, 169 pandemics and, 16, 20 precautionary principle and, 37 Sornette’s criticism of, 91, 132, 144–45, 146, 288 Taleb’s coining of term, 13 Universa’s trading strategy against, 14, 25–26, 97, 274 Bloomberg, 108, 134, 165, 175, 232, 287 BNP Paribas, 58 Bob Rubin trade, 141–42, 218 Bohn, Jeffrey, 32–33 Bostrom, Nick, 281–82, 283, 284 Bouazizi, Mohamed, 204 Bouchaud, Jean-Philippe, 85 Bourqui, Elisabeth, 157, 158 Boyd, Ian, 216 Bradbrook, Gail, 187, 188 Brand, Stewart, 124, 193–94, 212, 217 Bremmer, Ian, 252 Bridgewater Associates, 250 Brin, Sergey, 124 Brockman, John, 123–24, 190, 193 Bronson, Rachel, 235–36 Brookings Institution, 252 Brown, Aaron, 15, 23, 68, 96, 106, 217 Brown, Margaret, 171–72 Buchanan, Patrick, 42 Buckley, William, 41, 42 Buffett, Warren, 2–3, 41, 66, 121, 155–56, 176, 274, 275 Bulletin of Atomic Scientists, 163–64, 235–36, 285 Burry, Michael, 113–14 Bush, George W., 72, 78, 102, 107, 179, 204 California Public Employees’ Retirement System (CalPERS), 232 investment in Universa by, 151–54, 156–58 Meng’s review of Universa’s tail-hedge strategy with, 158–59, 175 Meng’s strategy for, 171–73 termination of Universa’s management of, 159–60, 171–72, 175–76 Callan, Trevor, 111 Cantor Fitzgerald, 64 Capital Fund Management, 85 Carbon Engineering, 251 Carbon Tracker, 241 Case, Greg, 266 CBOE Volatility Index (the VIX), 110, 154, 163, 167, 168 CBOT.

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Universa had made a fortune during the 2008 Global Financial Crisis, as well as other turbulent periods such as the 2010 Flash Crash, the 2011 downgrade of U.S. debt, a freak implosion in 2015 that earned Universa $1 billion in less than a week, and other big spikes in volatility, like the so-called Volmageddon of 2018. Universa called the strategy the Black Swan Protection Protocol. The protocol’s goal: to shield its investors from Black Swans. What seemed to be lining up in March 2020 for markets and the global economy was the ultimate Black Swan—worse than anything the world had seen since the Great Depression of the 1930s. National economies ground to a halt as workers and families huddled in their homes.

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” The following week, as the head-snapping volatility crushed the market, the small band of Universa traders would get little sleep, many napping just a few hours at a time on office couches or in their home offices before getting up, gulping down coffee, and quietly racking up a fortune. Spitznagel and his team saw their investments go vertical, like a rocket. By the end of March, Universa’s Black Swan Protection Protocol Fund had clocked an astonishing three-month gain of more than 4,144 percent. Spitznagel’s bet of around $50 million yielded, in a flash, eye-watering gains of nearly $3 billion. The returns were so astronomical some experts were skeptical. Some said the returns were impossible. Aaron Brown, a longtime risk manager on Wall Street—and longtime friend of Nassim Taleb’s—wondered if Universa was speculating on a crash.