My multimillion-dollar house in the islands had no hurricane insurance.
People think that’s absolutely crazy. I had liability insurance, in case somebody fell off the roof, and it could have been me, because I’m the idiot up there fixing the Starlink every other day. What I didn’t have was hurricane coverage.
The quote was $75,000 a year with a $20,000 deductible, the amount you pay yourself before the insurance kicks in. So basically I had to be $100,000 a year in. I didn’t pay $100,000 to protect myself from a stupid hurricane.
The Hurricane Window Where You Don’t Want To Be The Donkey
Hurricane season runs from June through November. Down on the island, there’s a three-week window in September where you’re basically playing pin the tail on the donkey, and you don’t want to be the donkey. Locals told me storms have hit as late as November.
So I knew the risk. I looked at the price of protection and decided it wasn’t worth it.
How Selling Options Turns You Into The Insurance Company
Every option has a buyer and a seller, the same as every insurance policy.
When you buy a put, you’re buying protection, the right to sell a stock or index at a set price if it falls. When you sell a put, you’re the insurance company. You collect the premium upfront, and you pay out if disaster hits.
Do I ever sell puts in the S&P? You’re damn right I do. That’s what Christmas trees are, spreads built to win small and win often.
I think I have more risk in a Christmas tree than I did in the Virgin Islands. That’s how I actually sleep at night.
When the market gets scary, most traders only think about buying protection. A pro asks the same question I asked about that house: is the premium worth the risk, or am I the one who should be collecting it?
You don’t have to sell insurance with no limit on what you can lose, either. My Pocket trades put a floor underneath and a ceiling on top, so you know the most you can lose, to the penny, before you get in.
To your success,
Don Kaufman
