Yeah, I agree. But isn't that generally always the case with insurance? You over-pay, and will likely never need it, but if you do, it saves you. I'm not particularly bearish or bullish right now, and my portfolio isn't either, but obviously there's a weakness; A, say, 40%? downward move could blow up my account, whether it's now or in a number of years. Of course, I could just adress this weakness by de-leveraging, switch part to currency, gold, whatever, indefinitely, which obviously I'd rather not do as I believe what I do is profitable. Or I don't deleverage & when the (maybe not so) unthinkable happens I make sure I'm covered, but at a high price. Obviously, I'm still investigating what's ultimately best here..
bjw: Here is a link with some discussion on the characteristics and construction of a BSH (Black Swan Hedge) that may be interesting. ""
Puts are expensive AFTER the event has happened. When buying puts , you have to buy them as "protection" or "insurance " before the "black swan" to be really effective . Selling calls is a Negative Vega trade ...again , great if the Vol popped and is coming back down...but if you sell then it pops...yikes!
home insurance is waaay cheaper relative to the value of the home than put insurance is relative to the value of the portfolio . Home insurance pays out everything in the event of a crisis...with puts you have tp buy them 'in the money' for the same effect, which is the most expensive
To protect against a Black Swan (systemic) event in stocks, which is a sudden and extreme move to the downside, buy DOTM Puts. When you get very Deep OTM, they are not too expensive. But a Black Swan event occurs very infrequently, so these puts will usually expire worthless which results in a cumulative cost over time that adds up. If possible, you're better off trading a long/short market-neutral approach so you're protected against more common moderate-sized moves to the downside. In this case, the rare Black Swan event gets taken care of, too. Options not necessary, just take short positions in the weakest markets in the asset class you're trading.