Jim O’Shaughnessy reflects on how selling his put position hours before the 1987 crash reshaped his investing philosophy. After watching the Dow fall 4.6% on October 16, he abandoned trade that could have made a fortune, reinforcing his belief that emotion and forecasting sabotage investing.
Why Selling a Big Position of Puts the Day Before the Crash of ‘87 was a Great Trade
O’Shaughnessy Asset Management
Jim O'Shaughnessy
Research
2 Pages
Key Takeaways
Emotions Destroy Returns: At age 27, O’Shaughnessy exited his entire put position one trading session before the 1987 crash, turning a potentially massive gain into a breakeven trade.
Short Term Noise Hurts: A 4.6% Dow decline on October 16, 1987 and bullish media commentary pushed him to override his original thesis at the worst possible moment.
Discipline Beats Forecasting: More than 30 years later, O’Shaughnessy argues emotional decision making still dominates markets, noting over 60% of quants reportedly overrode models during the financial crisis.
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