Why are options so expensive compared to home insurance?

destriero said:
Bear risk reversal. 20-25D short call. long put. You'll have to pay a debit but it converts the portfolio into a synthetic bull vertical (fully hedged).

Using ATR and other analogies are pointless. If it's overpriced then where are the sellers? Would you have wanted to short puts at yesterday's close?

Options ARE volatility. OTC MMers price structures in vol not premium.
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Yeah but whats the point of hedging? All this does is remove any chance of profits. Why even own the stock? It would be like home insurance negating any future capital gains in the property. Regardless from my calculation that would be selling an atm oct27 call, and buying the same put which nets -2.29 x 2950 = 6755 per month x 12 = $81k per year in hedging costs.

I guess if I put my destriero glasses on, if the price drops, the puts should gain more value than you lose on the long stock because of extrinsic value, so I guess you could shave some profits from this skew in parity? But the short calls would have lost less value than the long stock for the same reason, so does this cancel out the puts? Or in a downtrend, the price of puts generally go up more than the price of calls come down due to the fear factor? You would have to be adjusting to 0 delta all the time. I have to read that book on volatility.
 
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wxytrader said:
Yeah but whats the point of hedging? All this does is remove any chance of profits. Why even own the stock? It would be like home insurance negating any future capital gains in the property. Regardless from my calculation that would be selling an atm oct27 call, and buying the same put which nets -2.29 x 2950 = 6755 per month x 12 = $81k per year in hedging costs.
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It converts the trade into a bull vertical.
 
destriero said:
It converts the trade into a bull vertical.
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So if AAPL goes up you gain from the long stock but you lose on the short calls and long puts. And if AAPL goes down you lose on the long stock, but you gain on the long puts and short calls.

So you stand to lose nothing, but you also stand to gain nothing and this is costing you a debit every month...so you are in fact losing money.
 
wxytrader said:
So if AAPL goes up you gain from the long stock but you lose on the short calls and long puts. And if AAPL goes down you lose on the long stock, but you gain on the long puts and short calls.

So you stand to lose nothing, but you also stand to gain nothing and this is costing you a debit every month...so you are in fact losing money.
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If you're long 100 AAPL from 170 and you buy the 165P and short the 175C = long 1 165/175 call spread.
 
destriero said:
If you're long 100 AAPL from 170 and you buy the 165P and short the 175C = long 1 165/175 call spread.
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Ok sure that protects the down side by limiting the upside. BTW why are 1 otm calls worth more than 1 otm puts?
 
wxytrader said:
BTW why are 1 otm calls worth more than 1 otm puts?
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Can you give an example?
Of course it depends on the offsets to the (theoretical exact) ATM (ie. equalling the underyling spot) as well the IVs...
 
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Ok,I'm lost.....

OP,what's the probability of AAPL going down 20 percent vs Your Home getting clobbered 20 percent by mother nature ??

Oh,and have you ever lived in a coastal area,get slammed by a hurricane and try to collect??
 
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