Optionality

Keep your future options open - position yourself to benefit from uncertainty.

The Core Idea

Optionality is about maintaining the ability to choose. It’s structuring your life, investments, and decisions so you have multiple paths available and can benefit from uncertainty rather than being harmed by it. Options have asymmetric payoff: limited downside, unlimited upside.

Key Principles

Asymmetric Payoff Options let you benefit from good outcomes while limiting exposure to bad ones. You pay a small price for the option but can gain multiples of that if things go well.

Preserve Freedom Every commitment you make closes options. Every option you maintain preserves freedom. Balance commitment with flexibility.

Uncertainty as Opportunity Most people fear uncertainty. Optionality lets you benefit from it. The more volatile and uncertain the environment, the more valuable options become.

Non-Linearity Options become more valuable in chaotic times. A small investment in optionality can yield enormous returns when circumstances shift dramatically.

Types of Optionality

Career Optionality

Build transferable skills that work across industries
Maintain relationships across different domains
Avoid golden handcuffs and path dependency
Keep learning to preserve adaptability

Financial Optionality

Maintain cash reserves for opportunities
Invest in assets with convex returns (limited downside, unlimited upside)
Avoid obligations that lock in future spending
Create income streams that don’t require your direct time

Knowledge Optionality

Learn foundational concepts that apply broadly
Expose yourself to diverse fields and ideas
Build mental models that work across domains
Stay curious about emerging fields

Social Optionality

Build diverse networks across industries and geographies
Maintain relationships even when not immediately valuable
Stay in touch with former colleagues and connections
Help others without expectation of immediate return

Strategic Optionality

Make small bets across multiple potential futures
Don’t commit all resources to one path
Build systems that work under multiple scenarios
Position for convex outcomes

Applications

Decision Making Before committing fully, ask: “Does this preserve or eliminate options?” Favor choices that keep multiple paths available.

Career Strategy

Learn skills that transfer (writing, coding, selling, designing)
Work on problems that exist across industries
Build portable expertise, not company-specific knowledge
Maintain your “walk away” ability

Investment Approach

Keep dry powder for opportunities
Invest in situations with limited downside, unlimited upside
Use actual options (calls, convertibles) when appropriate
Build positions that benefit from volatility

Startup Strategy

Launch MVPs to test ideas cheaply
Build platforms others can extend
Keep burn rate low to extend runway
Create multiple paths to profitability

Personal Life

Maintain your health (preserves all future options)
Avoid lifestyle inflation and financial commitments
Keep skills sharp even when employed
Build relationships outside your immediate circle

The Optionality Framework

Identify the decision - What are you committing to?
Map the options it closes - What future paths does this eliminate?
Assess the asymmetry - Limited downside, unlimited upside?
Consider the cost - What does maintaining the option cost vs. its potential value?
Check for irreversibility - Can you reverse this choice later?

Real Options vs. Plan B

Real Optionality:

Structured to benefit from uncertainty
Asymmetric payoff profile
Small cost, large potential benefit
Kept open deliberately

Plan B Thinking:

Hedging against commitment
Often an excuse for lack of commitment
Can prevent the focus needed for success

The key distinction: Optionality positions you to win from multiple scenarios. Plan B thinking often just dilutes effort.

Creating vs. Buying Optionality

Create Options:

Build skills and relationships
Develop transferable expertise
Maintain health and energy
Establish reputation and trust

Buy Options:

Keep cash reserves
Purchase actual financial options
Invest in early-stage opportunities
Buy time through low fixed costs

Working With Optionality

Pay small costs to keep valuable options open
Let dead options expire rather than throwing good money after bad
Exercise options when the asymmetry is in your favor
Create new options continuously
Balance optionality with the commitment needed to build something valuable

Common Pitfalls

Keeping too many options open and never committing
Confusing optionality with lack of focus
Paying too much to maintain options
Not recognizing when options have value
Failing to exercise options at the right time
Mistaking plan B thinking for true optionality

Leverage - Options provide leverage on uncertainty
Second-Order Thinking - Consider how choices affect future options
Circle of Competence - Options in your competence circle are most valuable

“The long run is a misleading guide to current affairs. In the long run we are all dead.” - John Maynard Keynes

“Optionality is the property of asymmetric upside (preferably unlimited) with correspondingly limited downside (preferably tiny).” - Nassim Nicholas Taleb

“In a world of uncertainty, having options is better than having a fixed plan.” - Reid Hoffman