There was nothing fundamentally wrong with LTCM's business model, or with writing puts. Where they failed was in their execution - they underestimated the risk

There was nothing fundamentally wrong with LTCM's business model, or with writing puts. Where they failed was in their execution - they underestimated the risk of fat-tails, and the level of correlation between different securities. There are lots of cases where we do things that could potentially be catastrophic, but we do them anyway because the risk-reward justifies it. For example, going on a road trip instead of sitting at home and watching TV. The upside of going on a road trip is bounded (fun holiday) but the downside is catastrophic (deadly car crash). If we avoided every single activity that involved catastrophic risk, our lives would be far worse.