Trading Insurance for futures contracts

T

Tonkadad

If you wanted to explore the idea of using
puts as insurance for black swan events, how would you begin?

Do you assume that to the down side is the only risk?

Would you only look at deep OTM put options and treat the difference between actual price of futures contract and OTM put as the deductible?

What is the most bang for the buck regarding on how far out to go for expiration?

thanks for your responses.

Bruce
 
Who knows? It's all up to you... You can buy OTM puts, buy OTM strangles, anything, whatever...

It's up to you to decide what sort of risk you're trying to anticipate.
 
Quote from Tonkadad:

If you wanted to explore the idea of using
puts as insurance for black swan events, how would you begin?

Do you assume that to the down side is the only risk?

Would you only look at deep OTM put options and treat the difference between actual price of futures contract and OTM put as the deductible?

What is the most bang for the buck regarding on how far out to go for expiration?

thanks for your responses.

Bruce
More...
Buying OTM puts was ok strategy to protect existing profits when IV was dirt cheap like early in 2007. But if you’re initiating a new positions in current market, then personally I’d instead look at options spreads and try to milk the trade by profiting on IV and theta, rather than relying on delta which is going to be impacted by the strike price and how far in time you go with the puts. I’d be looking to capture IV opportunity, theta opportunity and not just price opportunity, and would construct the spread above/ below strong levels of support/resistance zones and time projections. Once you have some technical viewpoint on the underlying, then you can play around with various spreads and compare how they would behave if things work out as expected or unexpected :)

Better go to options forum, you're more likely to get more answers there :)
 
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