It's really frightening to know that the quickest, easiest way to make millions of dollars gaming the stock market is just to bet on global financial disasters, or bad news of companies, or crops failing.
Essentially your wealth is path dependent. Though the expected value may be positive, once you are ruined you cannot continue to play (or in this case) invest anymore.
In math you could theoretically always bet (or invest) a fractional value of your wealth, but not in the real world.
There's a +EV (long run, even with finite starting bankroll) strategy readily available under the stated conditions.
Yep, that is correct, but the kelly criterion requires fractional betting, which at some point in the real world is not possible, especially with options.
This is because there is a limited amount of options you can sell/purchase, so the fractional bet will always decrease as your bankroll increases. And there is also a floor where you cannot purchase below if your bankroll falls below (though your investors would have wiped you out by than).
That is suboptimal
The Kelly criterion is about optimizing the speed of growth of your bankroll when betting with an advantage, so it's still "safe" to round down.
My trading account is "nowhere near the size of Taleb's" (to put it mildly) and I don't use his strategy, but I've never found that I wished for fractional optional contract sizes. (I don't even use the mini-S&P options.)
When you're selling deep out of the money puts you can't just assume there will be a buyer to satisfy the fractional betting condition mentioned by the author in the (theoretically correct) kelly principle.
Not doing so is suboptimal
I guess we're just talking over each other - you made an assumption that I don't believe was clear from the context.
How many other traders out there look forward to bubble bursting events like this? Commodity disasters? Oil disasters and shortages? The whole "dumb money" (retail trades, casual investments, passive investment funds) vs "smart money" (day traders, hedge funds, insider traders, HFT) would lead me to believe that it's beneficial to exploit the excessive pumping up and bursting of financial bubbles, as it only siphons up 'dumb money'.
Meanwhile he made a 15-20% return, on a twice in a decade type of event, and isn't making public his annual returns every other time. (take a wild guess why?)
In short, not incredibly impressive.
Beyond that, consider why he makes money when there is a financial disaster? Because they act as some form if insurance on economic downturns, basically. A ton of it is bad (i.e. when the whole world profits by burning it down, you've got the wrong incentives!), but some of it can be quite healthy.
Not seeing anything frightening about that, but it all depends on what measure.
Also, correct me if I'm wrong but day traders / short sellers aren't obliged to keep the stock positions for any length of time.
I just find the phenomena interesting in context of financial bubbles, as the largest financial traders are incentivized to exploit instability of markets, and would be eager to create bubbles for the inevitable pop and profits on the plunges.