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Victor Niederhoffer was the legend in 1997. Five-time squash world champion, statistician, Harvard economist, author of the classic The Education of a Speculator. George Soros had entrusted Niederhoffer with his own money for years — there was no higher recommendation in the industry at the time. His fund had returned 30 percent annually after fees. Year after year.

Niederhoffer's strategy was as simple as it was ingenious. He sold put options on the S&P 500, far out of the money. Puts that would only become valuable if the market fell 5 or 10 percent — which almost never happened. They usually expired worthless and he collected the premiums. His colleagues called it picking up pennies in front of a steamroller. Niederhoffer himself called it statistics: in 99 out of 100 months he was in the money.

On Monday 27 October 1997, the Asian crisis hit the American market. The Dow Jones fell 554 points — at the time 7.2 percent in a single day. Niederhoffer's sold puts exploded in value. His brokers called margin calls he could no longer meet. He had to call his investors. He had to close his fund. He had to sell his house with its tennis court to satisfy the banks.

In a single trading session, a fortune was gone that he had statistically accumulated over decades.

Nassim Taleb was Niederhoffer's intellectual sparring partner in the late 1980s and 1990s — they corresponded, trained together, respected each other. But philosophically they were mortal enemies. Niederhoffer believed in statistics and mean reversion: the probability of large market crashes was very low, so sell the insurance against them. Taleb believed the exact opposite: large crashes were more frequent than the models predicted — so buy that insurance.

Taleb's strategy was uncomfortable to practise. He bought far out-of-the-money put options that expired worthless most of the time. Month after month he watched his premiums evaporate. His investors called him angry. Other traders laughed at him: "You're burning money, Nassim."

But with every black swan — the 1987 Black Monday, the 1997 Asian crisis, 1998 LTCM, the 2000 dot-com crash, the 2008 financial crisis — his puts exploded in a single week. He made in ten days what others didn't make in ten years. And while Niederhoffer was ruined in 1997, Taleb made a fortune in the same week.

Taleb's Empirica Capital fund had a return profile for years like an hourglass: long, lean years with small negative returns, punctuated by single explosive gains. The result across all cycles: far above market return.

From 2012 to early 2018, volatility was in freefall. The VIX, Wall Street's fear gauge, kept falling. And one product benefited like no other: the XIV, an Exchange Traded Note from Credit Suisse. XIV simply stood for "VIX backwards". When the VIX fell, XIV rose. Over six years XIV returned roughly +1,900 percent.

On Reddit, on Seeking Alpha, in financial blogs, XIV became the favourite investment of do-it-yourself investors. Retirees loaded up their portfolios with it. Traders financed houses. "Short volatility" became a lifestyle. Nobody read the prospectus warnings any more — that a volatility spike could theoretically mean a 100 percent loss.

On Friday 2 February 2018, the market started to wobble. The VIX rose from 13 to 17. Unremarkably. On Monday 5 February the move intensified. The S&P 500 fell 4 percent — a normal correction. But the VIX doubled: from 17 to 37. In one hour.

The reason lay in the mechanics of XIV itself. The product had to internally buy VIX futures to adjust its exposure — and the more it had to buy, the harder it drove the VIX. A reflexive death spiral. In the after-hours session XIV fell by −96 percent. Credit Suisse liquidated the product entirely a few days later.

That same day the LJM Preservation & Growth Fund exploded — a short-vol hedge fund that deliberately carried the word "Preservation" in its name. It lost −82 percent in a single day. Investors who had parked their retirement savings there woke up Tuesday morning having lost almost everything.