Niederhoffer’s publicized hiccup came from his selling naked options based on his testing and assuming that what he saw in the past was an exact generalization about what could happen in the future. He relied on the statement “The market has never done this before,” so he sold puts that made a small income if the statement was true and lost hugely in the event of it turning out to be wrong. When he blew up, close to a couple of decades of performance were overshadowed by a single event that only lasted a few minutes.
