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

Wall Street Journal reporter Patterson (Dark Pools) delivers an illuminating investigation into those who profit from anticipating crises. Patterson outlines the two prevailing camps of catastrophe forecasters: there are those who follow trader Nassim Nicholas Taleb’s “Black Swan” theory, which posits that world-changing events are often entirely unpredictable, and then there are those who follow French physicist Didier Sornette’s “Dragon King” theory, which holds that events can be predicted if one has the right inputs. The author explains how Taleb positions himself to profit from sudden market crashes by purchasing put options (an agreement that obligates the option seller to buy back assets at a predetermined price should the option buyer decide to sell), which usually result in minor losses but have huge payoffs during market plunges. Sharp profiles of Taleb, Sornette, and other traders leaven the complicated financial discussions; for example, Patterson describes Sornette as a strong-willed risk-taker whose idiosyncratic thinking led him to predict the housing bubble of the mid-aughts. Additionally, the author has a knack for translating complicated financial maneuvers into easily comprehensible terms (he likens put options to “fire insurance that pays off triple the value of your mortgage... if your home burns”). Detailed yet accessible, this will appeal to fans of Michael Lewis’s The Big Short. (June)