So here’s the most critical lesson I’ve learned and something I think about a lot. Like daily. Anyone who begins investing will learn quickly that it’s not uncommon to go through multiple boom-bust cycles where you make a ton of money and then take heavily losses and are forced to start over.

Here’s the MOST critical thing I can say. This is RULE #1. And while it might sound cliche or unimportant, it isn’t. It is extremely crucial insight.

The moto of the Zero Hedge website has it right. On a long enough timeline, the survival rate for everyone drops to zero. It’s a very prescient quote and one worth reiterating to ourselves on a daily basis.

The moto is a play on words and contains a double-meaning.

In the literal sense, all of us are eventually going to die. 300 years from now, barring life extension, everyone reading this will be dead.

Figuratively — If you invest long enough—especially without a hedge—you’ll eventually blow up. Everyone does. One wrong move, one poorly managed event, and it’s all gone.

The entire point of investing is to be like Warren Buffet. Longevity is the key.

If I could give one piece of advice to my younger self—the kind of advice that would have made me a billionaire by now—it’s this:

In markets, ruin isn’t a possibility—it’s a timeline. No matter how much you make, one unhedged mistake is all it takes to reset everything to zero. The greatest risk is not the one you can see—it’s the one you don’t account for. Hedge not because you expect disaster, but because markets don’t ask permission to deliver one.

You can double your money five times in a row—but one unhedged blow-up will erase all of it. Hedging is the only thing that interrupts inevitability.

One Mistake Is All It Takes

Every day, we need to ask ourselves:

-What happens if the market crashes?
-What happens if it goes nowhere?
-What happens if it rips higher?

Let’s consider the Arryn Portfolio as an example. Arryn launched last August and is up 140% right now $240k). It did well this year and almost ALL of the gains have been generated exclusively from our hedges. This is true and you’ll see the math below. Almost all of the returns are the result of having been hedged and transitioning the return generated from our puts into leaps.

If someone had followed the trades in the Arryn Portfolio to the letter but decided that hedging was only optional, they’d be underwater right now. Especially if they freaked out during the downturn that saw the leaps drop by 50%.

We went into 2025 expecting to see some sort of a correction. But we definitely didn’t see a 25% correction. We hedged for it. But it wasn’t part of our forecast at all. In fact, we thought the QQQ would run to $600 and then maybe sustain a 20% correction from there.

Here’s how it played out:

Between our put options and covered call sales, we booked $61,583.00 in pure hedging profits during the correction. That’s a 61.58% return just on hedging alone. More important, this allowed us to build the core positions and profits we have today. Specifically, here’s how we deployed that capital. We made the following purchase with that capital during the April 7 capitulation day:

(1) June 2027 $400 QQQ calls – bought for $34,000, now worth $66,805
(2) 600 shares of NVDL – bought for $16,800, now worth $31,422
(3) Apple Jan 2027 calls – bought for $12,000, now worth $15,900

That’s nearly $115,000 in value sitting in the portfolio right now—entirely funded by hedging activity. No hedge. No $115,000. You can subtract that right from the portfolio right now. None of that exists without the hedges. The portoflio would be at $120k right now.

Stark would be deeply under water. So would Lannister.

And here’s the reality. This is the honest to goodness reality. Arryn can do well for years 1, 2, 3, 4, 5, 6, can be sitting at $5,875,000 and then go right back down to $100k on one major mistake. We make one wrong move and it’s all over.

That’s the core concept here. So how do we ensure that we don’t make that mistake?

We have to hedge at all times. That means either relying long recovery periods (using common stock or far end leaps) and/or holds puts MOST of the time.

there will always be times where puts have to be removed as was the case near capitulation. But when that happens, we have to be in ultra long-term investments. Ones that will surely recover in a crash.

The highest point of risk that we take must occur in the lowest probability situation. Anytime we remove hedges, it must be done only under circumstances where the probability of continued downside is at its lowest point. And even then, we should hedge by using time (2-year rule).

That’s what we did in Arryn during the recent crash. We closed out our hedges between April 3-7 bought NVLD, June 2027 leaps with 80% of hte capital and Jan 2027 Apple calls. SO most of the capital was in options that expired in 2.3-2.4 years and in an asset that doesn’t expire (NVDL).

We then re-hedged our position by April 15 (just a week later):

Arryn Portfolio
Buy to open NASDAQ-100 (QQQ) Mar 2026 $400 Puts @ $18.40 x 8 contracts made at 12:31 PM EST on April 15, 2025
8% Portfolio Allocation

That’s only 8 calendar days where we remained unhedged in Arryn. A period where the market saw an extremely high likelihood of rally.

We have to continue operating in this manner PERMANENTLY. Every correction. Every rally. It has to be perfect at all times or we risk going back down to $100k or less. We lose all our gains if we don’t always hedge.

This is the most important thing:

On a long enough timeline, everyone’s survival rate drops to zero (unless you hedge).

So the reason we started considering 5.5% as a dividing line is because there were a few critical melt-up rallies that couldn’t be subdivided without making the 5.5% mark the dividing line. You’d sendup with rallies that lasted 400-days.

What’s more there were plenty of regular rallies where’d get a 6-7% correction only after a smaller 12-15% rally. The market would trade exactly as if it were in a correction just at a lower percentage treshold.

After 2020, that slowly shifted. If you look at tables 4.0, the smallest correction is 5.06% in November 2016. There we have FIVE different corrections at less than 6% each.

In table 4.1, backing out melt-up rally environments, we only have 2 rallies under 6% and one is 5.95% and the other 5.89%.

So I’d say in melt-up rally environments, the minimum threshold to count as a correction is 5%. Meaning, if we’ve just witnessed a full blown melt-up rally, it’s very possible that we’ll only see a 5% pull-back before the market continues higher.

In higher volatile markets with a higher average daily returns north of 0.26%+, you can expect the minimum correction to be around 6% (5.89%/5.95% being the smallest). But notice that.

Notice that after 2016, the smallest correction we’ve seen in high volatility rallies was 7.53%. That’s the smallest pull-back/correction since June 2016. And notice how the three times we did see sub-8% pull-backs in the post 2016 era, they were after rallies of only 15, 16 and 18%. Every other correction was well north of 8%
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So it’s based on the data itself.

I’ve been there and done that and it’s inevitably a bad outcome.

I think I have a chapter on it and a rule on it. We never want to sell short dated covered calls.

So here’s the reasoning behind it. With shorter calls, you have to sell lower strikes. And you get less of a premium when doing so.

The risk is too high for getting called away at too low of an exit.

Imagine if we had sold shorter dated options when we decided to sell premium against the QQQ back in May-June. At best we may have been able to sell the $530’s for a few dollars. For example, right now the October 17 $610 calls are worth $7.00.

The whole point of having sold the September 540s was to (1) offset our basis by a substantial sum ($20) or 25% basis reduction; (2) to sell a expiration that would require the QQQ to record a record, breaking duration rally in order for us to get called away; and (3) to sell a far enough out of the money to allow us to participate in the rally while generating further risk reduction.

When we sold the 540s, we still got to participate all the way up to 560 a share. But if the QQQ had peaked at any point before then and then sustained a correction, we would have offset that sell off by 20 points.

The paradigm at the time was that even if the QQQ managed to rally beyond a 560 share and beyond the month of September, we would have an inevitable correction that takes us back down below 560 a share.

That is still very much true. At 600 to share a standard correction would take the QQ down to 540.

A larger correction can take the QQ down to 515-525

And even if the QQQ only returned to 560 it would do so after theta decay.

Meaning, let’s suppose a QQQ rose to 620 a share over the next four weeks and then it proceeded to fall $62 (10%) in a correction that occurs in November. The QQQ returns to $560 exactly – our effective exist price.

Under that scenario, we are better off because we got to buy back two months later after theta decay.

Since we are rolling forward, we would be buying those future options at a discount relative to September.

We closed out our calls in September and we bought back ours at the same price level, but in November

That is the type of situation we wanna be in when we sell covered calls

In the future, when we look to sell covered calls our thinking is going to be very similar. We’ll probably look to cell covered calls if the rally approaches 30%. The calls we sell would need to allow us to participate up to around 40% and we sell at an expiration that we felt confident the QQQ is unlikely to surpass without correction.

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When selling shorter dated covered calls what invariably happens is you’ll get it right like four or five times and then you’ll get called away in a very bad way.

Like imagine if we had closed out our entire position at 520 on the QQQ.

Or imagine if we had sold short term covered calls at $490 expecting a segmented rally pullback.

QQQ gapped up above 500 and never looked back.

That’s the danger in shorter dated calls. You can’t generate situations that compare to what we did back in May. Which was to essentially allow us to participate in most of the rally.