What are Grey Swan Trades?

Borrowing from the bestselling book by Nassim Nicholas Taleb, a Grey Swan trade is a trade that is based on a low probability event but has a huge asymmetric return if the event does indeed take place. While losses on many individual positions are often likely for these types of trades, the potential returns from the few that are profitable should more than compensate for the losing ones. While stock or index Options are often the type of investments that exhibit highly asymmetric returns, in some cases individual stocks can exhibit such a payoff structure.

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