> Your problem is then what to do. If you've decided that you want to wait for the big payday, how are you going to stay in business until your ticket comes in?

> Your problem is then what to do. If you've decided that you want to wait for the big payday, how are you going to stay in business until your ticket comes in? How do you keep your investors faithful until then? This is the actual skill in this trade, btw. I’ve been to one of the Wilmott-Taleb seminars in London. Taleb answered that question this way: 1. You buy way out of the money calls or puts which will eventually get you your big payday. Most sellers of these sort of options use Black-Scholes or similar model to price them, underestimating the frequency and/or magnitude of payout, and thus mis-pricing them. 2. Simultaneously you sell in-or-near-the-money puts or calls, which are more mathematically tractable, model-able, and thus manageable. Results in small and predictable income and payouts which you can manage to keep the fund afloat until #1 pays off. 3. Make sure your fund LP’s understand that this is essentially an insurance policy. People are accustomed to paying regular small payments for insurance against big unexpected events, and tend to accept that model for the fund too. As you say, the skill in this trade is in discovering options for #1 that are indeed mis-modeled and mis-priced, and in #2 managing that in/near-the-money portofolio as optimally as possible to cover or minimize the steady bleed from #1. It’s not easy.