...

In the world of investments, there are many ways more subtle than the Martingale to guarantee a better return over a period of months, years, and even decades, at the cost of certain ruin way down the road.  Let's say for instance that you're managing a hedge fund which invests in stocks.  Your strategy of sound fundamental analysis is fairly well understood.  You have found that you can generate an average return of 6% per year, and so can most of your equally qualified competitors who have access to the same talent pool and knowledge base as you do.  But then one of your competitors realizes that he can automatically increase his return to 9% by selling something called "out of the money puts" on the market.  This means that the competitor's fund essentially sells insurance against the market crashing dramatically.  In normal times his fund will gain the premium from selling this insurance which boosts his returns. However, in the rare event of an extreme market crash his investors will lose everything.  This form of Martingale can be easily tuned to work for various time periods with various chances of collapse.

...

Read the rest of the article at http://www.semyon.com/crisis.html