Optionality — The power of smart options and experiments

Hey all 👋 I kept coming across this term and had no clue what it meant — optionality. I heard it mostly in the context of finance, not my forte. So it ended up on my list of things to figure out ‘one day’. That one day arrived this week. Now, I am fascinated by this way of thinking and living. It was popularised by the book Antifragile by Nassim Taleb.

The best part about optionality is that its benefits aren’t limited to one aspect of life. We can use it to improve our health, wealth, and relationships.

So what is optionality?

Let’s dive in…Happy reading ❤️

Optionality is finding many options for one complex problem. It’s like always having a backup plan.

Simply put, don’t act without a plan B or even C for any non-trivial problem.

Didn’t we grow up listening to “Keep your options open” advice from parents and teachers? I can easily picture it as one of the wise sayings written with white paint on a black wooden plank in my school.

So what’s new here, you ask?

Two things.

You use optionality when the problem is complex. Not when you’re deciding whether to have vanilla or strawberry ice cream for dessert. 🍨🍧

Two, your choices shouldn’t be random. You need to find smart options with the following three characteristics.

#1 — Options must not be obligations

The options must be optional. Duh, you must be saying…it's in the name. 🙄 You don't have to use them.

Think of them as dormant opportunities. You can 'activate' them if you like or they can stay as-is.

Let’s say you have a box of emergency supplies in your house for a doomsday. The box can stay closed. Or it might save your life in case of emergency.

You’re making use of optionality when you:

• Buy a stock with the right to buy or sell at a certain price by a specific date.

• Get convertible bonds that you can convert into shares of a company’s stock under certain conditions.

• Go for real estate options with contracts that give you the right to buy a property at a specific price by a certain date.

In all these cases, you get the right to use your option but it’s not an obligation. You use it only if it suits you in the future.

How do you know whether it will suit you in the future? 🤔

You don't.

That's why you hold on to your options until the future becomes present. ⬇️

#2 — Decision after outcome

See how things unfold and then decide whether to use your options:

• If the value increases, you cash in and get gains.

• If the value decreases, you let it expire.

As you get to decide afterward, you can apply optionality to increase the surface area of your luck in all areas of life, be it in work, health, or relationships.

#3 — Unlimited gains, limited losses

Optionality teaches us to choose options that can either give us potentially unlimited gains or limited losses.

• If things go right, the sky is the limit. 🚀

• If things go wrong, there's only so much we can lose. 🫤

Let's say Gia is a programmer who’s happy with her current job working in X programming language, which is in high demand. She’s appreciated by her bosses and earns well.

Although she doesn’t need to, she decides to learn a new language Y that hasn’t picked up yet. Her colleagues aren’t interested. It might never be adopted! Why waste time?

In months to come, if Y comes to be in high demand, Gia will have an edge over her colleagues. She might even get a promotion or a higher-paying job. She might even pick some side gigs, start teaching it to others, and become an expert in the industry, the benefits are immense.

If the new language never picks up, Gia can keep doing what she’s doing. Limited loss.

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There are many benefits of practicing optionality. We are not stuck doing things in one manner. We become better placed to quickly adapt to a change and grab onto a new opportunity.

As much as I am looking forward to implementing optionality in my life, I have a question — do the following two contradict? ⬇️

Optionality versus focusing on one thing

If optionality teaches us to have multiple options, does it mean we should not focus on one thing at a time?

The concept of one thing, popularised by the book One Thing by Gary Keller encourages us to identify our ‘one thing’ for all aspects of our life.

What’s the ONE Thing I could do, such that by doing it everything else would be easier or unnecessary? — One Thing by Gary Keller

One thing encourages us to focus on a niche whereas optionality encourages us to keep our options open.

Going by the optionality logic:

• If you’re developing a product, make it for everyone.

• If you're writing a newsletter, write it for everyone.

• Don’t specialize. Generalize.

That doesn’t sound right. ❌

What to do?

The answer, I believe, lies in treating every option as an experiment.

Instead of blindly following one path, we can experiment with each option, give it our full focus, iterate, and improve on it until we nail it or fail it.

Result — A portfolio of successful experiments with unlimited benefits and some failed experiments with limited losses.

For example:

1. Meeting new people with no agenda. Potentially, a treasured friend for life. Worst, you don’t click.

2. Creating multiple tiny products or services.

3. Learning a new language, a musical instrument, cooking, gardening, etc.

4. Exploring a new topic out of sheer curiosity and interest.

In an uncertain future, optionality offers us unlimited opportunities at best and limited setbacks at worst.