Black Swan Protection Protocol

Chaos Kings: How Wall Street Traders Make Billions in the New Age of Crisis

by Scott Patterson  · 5 Jun 2023  · 289pp  · 95,046 words

$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

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, 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

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to sell. After launching the firm, Spitznagel and Yarckin had hit the road to wrangle money for their new fund. They called the strategy the Black Swan Protection Protocol. Things did not go well. A guiding principle behind the BSPP strategy was that it was designed to deliver its most explosive profits in a

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even understand what the fund did. “We do tail-risk hedging,” Spitznagel would tell them across the expanse of a dark oak conference table. “The Black Swan Protection Protocol Fund buys far out-of-the-money options that produce explosive returns in crashes, fat tails…” Tail risk? Options? Black Swans? Blank stares. It was

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CBOT in the 1980s. The risk of a market collapse was no longer a vague Black Swan looming distantly in the night sky. Universa’s Black Swan Protection Protocol, which had gotten its first new outside investments only that March, by September was providing market insurance for $1 billion—that is, protecting $1 billion

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the bathroom. Universa, of course, cleaned up. The following month, Spitznagel sent a letter to Universa investors to commemorate the ten-year anniversary of the Black Swan Protection Protocol. “As we ring the bells and reflect on how far we’ve come, I am reminded of an old Russian proverb that warns, ‘Dwell on

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had assigned some $5 billion in stock market risk for Universa to protect, a mammoth position that accounted for half of the portfolio in the Black Swan Protection Protocol. Lagnado and Baggesen said they wanted to ratchet it higher—to $15 billion, maybe even $25 billion. Times were good and the future was bright

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(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