Both Kyle Bass (from about 8:00 - 9:40) and Mark Spitznagel discuss an approach to finance where an investor takes a small percentage of their wealth and bets on an unlikely outcome, expecting to lose everything, but if right, makes 50-70x (70 was Kyle's figure) their bet. Setting aside the obvious bias in video one, I'm curious how this works in a portfolio.
Let's use an example. I work in the financial industry, which has been strong recently. I allocate my $500K mostly in stocks, bonds, cash and metals. However, I take a one percent slice - $5K - expecting to lose all of it every year that will "bet" against my industry as a whole. If my industry falls that year (many industries have year or two year declines every decade), I get 70x the $5K that I bet ($350,000); if it rises that year, I lose my $5K, but the majority of my money is a bullish investment on stocks anyway. Consider that those in the energy industry right now could have used this, as the decline in energy has been harsh and we're now past one year of a full decline, since it began in July of 2014.
Both Bass and Spitznagel indicate that they do this through put options; like buying a put option on a financial basket ETF, betting on a fall.
Since some of you excel are writing out examples using numbers, can anyone provide an example of how to do this using any industry where someone "hedges" their risk using options?