Reading through Nassim Nicholas Taleb's tome, The Black Swan is a tough slog but investors who bought into his strategy for protecting against plunging markets are celebrating their good fortune. (Taleb's book is about highly unexpected events -- the "black swan" refers to the formerly widely held belief that all swans are white which European explorers dispelled when they discovered black swans in Australia.)

Investors in Taleb's $3 billion Universa hedge fund made returns of 65% to 115% in October. How did Universa do this? Universa buys far-out-of-the-money put options on stocks and stock indexes, betting on sharp market falls. Universa keeps 90% of assets in cash so it either breaks even or loses small amounts in most months while waiting for black swans. One Universa killing: American International Group (NYSE: AIG) puts. In late July, it paid $1.29 apiece for AIG put options, which were going to pay off only if AIG stock fell below $25 a share by September (AIG common traded at $26 on July 31st). Universa eventually sold its puts for $21 apiece.

Should you try to replicate Taleb's strategy? It depends. If you believe that the worst is over and other hedge funds are already copying the strategy, then the answer is no. If you think that the markets have further to fall, but that other kinds of stocks will prove most vulnerable, you can buy out of the money puts on those stocks. I am glad to see that someone is making money in this horrible market. Why shouldn't you?

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns AIG securities.