question on insurance

[jeremey.frost]

i was at a meeting last week that indicated insurance premium cost came from volatility..................i also read something on twitter yesterday that ag volalitiy on options was at a 10 year low..............

does anyone think that it makes sense to buy put options now............ahead of insurance pricing period............with the idea of lifting the puts as insurance pricing period happens?

[sw363535]

How can options not reflect futures volatility? That is really an interesting post, frosty.

[giolucas]

Jeremy,

I was thinking about ordering some T-shirts that say:

"Don't Drink and Trade"

[jeremey.frost]

the futures market is volatile yes...........but if you pull up a chart and add a study of volatility it is rather low...........and if you look at studies for implied vol you will see will see that we are are on the low end of the last 5 year range

my thoughts are that perhaps one add's a play that is long volatility versus paying more for premium later...........

types of plays that are long volatility include buying an option........or you could sell futures and buy calls.........delta neutral............you could buy both calls and puts.................i don't think i like idea of just buying puts because if you look at charts and from my experience grain options volatiliy seems to greatly increase when the board goes up............

bottom line just curious if anyone else thinks a neutral type play that is long volatility makes sense here heading into insurance..............and if anyone has a good idea of how insurance premiums are calaculated............

here are the couple charts with vol study on them and a snap shot of option vol over past 5 years

[Palouser]

I probably don't understand well enough but buying puts seems awfully expensive if you are going to get insurance too. In that case i have top wonder how much value you'd be protecting with the puts compared to the cost? It seems redundant.

[jeremey.frost]

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[jeremey.frost]

i don;t know that i would buy just put's but rather something that is long volatility..............so maybe puts and calls or a delta neutral type move via selling futures and buying calls

also with the plan of lifting the options at time of insurance pricing there are plenty of programs out there that will do what if's.........and if we pick up any volatility i think you will off set premium lost in time value

i am not saying it is right move for everyone or even for anyone..........just asking question on thoughts