The RE insurance calculates about a 4.6% implied. Apple's 1 year implied, is about 22%. Let's for the sake of argument say the distributions are similar - which is a major assumption. Let's also assume the Apple 1-year put assumes no dividends. Dividends would value the Apple put higher. Both assumptions are exactly ATM. Every iteration where you double vol. means about 4X to the put price. The zero deductible Apple put is worth about $30,000. Deductibles in insurance are similar to OTM strikes.
Why are options so expensive compared to home insurance?
- Thread starter wxytrader
- Start date
The premium paid for homeowner's insurance is to mainly protect against physical damage to the house and is set by a insurance company using actuaries to estimate risk. Listed option premiums are determined by the market participants comprising those who seek risk and those who seek protection or premium income.
Options for real estate to buy or sell are possible as well. For example, I could offer you $5000 for the right to buy your house at $500,000 within 12 months. Assume we agree it is current fair market value. Would you take it? If not, why? If you would take it, let's talk!
Options for real estate to buy or sell are possible as well. For example, I could offer you $5000 for the right to buy your house at $500,000 within 12 months. Assume we agree it is current fair market value. Would you take it? If not, why? If you would take it, let's talk!
Oh that's whats going on...I only deal with indexes so they skew towards the put side whereas stocks tend to skew towards the call side.
No such thing as call skew in SN outside of biotech and risk-arb. All large cap index components are put skewed.
Skew in index options needs to be pretty symmetrical as they are European and fairly easy for the desks to arb. Not saying there isn't any, but it needs to be pretty symmetrical. A classic confusion exists because the options price from the forward, not the cash. The cash gains relevance as you approach expiration. You converge to the spot at expiration.
(Cheap plug)You might want to read my chapter on volatility in the book Master Traders.
(Cheap plug)You might want to read my chapter on volatility in the book Master Traders.