Unemployment Insurance Through Options
This is a snapshot of the Jan '17 puts for XBI, the biotech index.  The current price is $65.73. You can see that even the puts far out of the money are costly. The $40 put, if you get a fill at $3, means a 10X return if the index drops to $10. A 70X return for a mild, cyclic, drop isn't likely to happen.  Sharing youtube links is an awful way to ask a question. The first was far too long to waste my time. The second was a reasonable 5 minutes, but with no example, only vague references to using puts to protect you in bad years.  Proper asset allocation is more appropriate for the typical investor than any intricate option-based hedging strategy. I've successfully used option strategies on the up side, multiplying the returns on rising stocks, but have never been comfortable creating a series of puts to hit the jackpot in an awful year. That's not unemployment insurance. Because it's perfectly possible, and even likely, that your industry will do badly but you'll keep your job, or that your industry will do well but you'll lose your job anyway. Any bet you make to insure yourself against unemployment has to be individually about you -- there are no suitable proxies. Options do act, somewhat, like insurance.... However.... An insurance policy will not have such short term expiration time frames. A 20 year term life insurance policy can be thought of as insurance with an expiration. But the expiration on options is in weeks, not decades.  So (IMO) options make terrible insurance policies because of the very short term expirations they have.
There are, of course, many possible financial emergencies. They range from large medical expenses to losing your job to being sued to major home or car repairs to who-knows-what. I suppose some people are in a position where the chances that they will face any sort of financial emergency are remote. If you live in a country with national health insurance and there is near-zero chance that you will have any need to go outside this system, you are living with your parents and they are equipped to handle any home repairs, you ride the bus or subway and don't own a car so that's not an issue, etc etc, maybe there just isn't any likely scenario where you'd suddenly need cash. I can think of all sorts of scenarios that might affect me. I'm trying to put my kids through college, so if I lost my job, even if unemployment benefits were adequate to live on, they wouldn't pay for college. I have terrible health insurance so big medical bills could cost me a lot. I have an old car so it could break down any time and need expensive repairs, or even have to be replaced. I might suddenly be charged with a crime that I didn't commit and need a lawyer to defend me. Etc. So in a very real sense, everyone's situation is different. On the other hand, no matter how carefully you think it out, it's always possible that you will get bitten by something that you didn't think of. By definition, you can't make a list of unforeseen problems that might affect you! So no matter how safe you think you are, it's always good to have some emergency fund, just in case. How much is very hard to say. That's not true - insurance companies can manage that risk and look to Re-insure that risk with very large pools of risk capital through reinsurance.   Government agencies traditionally have not looked to buy insurance but are now starting to insure such catastrophic risks.  I believe the NFIP has some sort of excess risk cover such that if losses are greater than $500 million, then it triggers a payout from large private insurers. "If anyone on Reddit actually knew anything about what it takes to run a business let alone a construction business they would keel over their keyboard in a panic attack. It's gonna cost 500 just for the permit. Not to mention you need to pay the state every year to take a test to say you are even qualified to ask for a permit. Then they have the highest unemployment insurance out of any industry then they have the highest liability insurance rates aside from doctors. Then you have to pay someone to accept your dumpster full of old roof garage. Then you all of your office overhead and supervisor for the job. Then when you do all of that really well and make a profit now you can expect to pay 30% taxes on what's leftover.    Everyone on Reddit thinks small business operates like Apple and Google dodging billions in taxes by being global. The truth is small businesses are like the ""poor"" people they employ. On a macro level they pay the brunt of the taxes in proportion to earnings so the 1% of large companies can dodge theirs." "Because people are Risk Averse. Suppose that you own an asset worth $10,000 to you.  Suppose that each year, the asset has 1% chance of being stolen (or completely broken).  The expected value is 99% x 10,000 + 1% x $0 = $9,900. This is the average outcome if you do not buy insurance.  Now consider two mutually exclusive outcomes: 99% chance of keeping $10,000 and 1% chance of losing everything (expected value: $9,900)  100% chance of keeping $9,900 (expected value: $9,900)  Everyone would choose option 2, even though the expected values are the same.  Option 2 is an insurance that cost $100 (Actuarially fair, aka the odds are fair).  Now suppose the insurance costs $150 instead of $100 (despite that the bad probability is still 1%). You are faced with  99% chance of keeping $10,000 and 1% chance of losing everything (expected value: $9,900)  100% chance of keeping $9,850 (expected value: $9,850)  Some people would still choose option 2, even though the expected value is actually lower.  The $50 is called Risk Premium, which people are willing to pay in order to avoid uncertainty. The odds are unfair, but the Risk Premium has its value.  That being said, competition between insurance companies would drive down the premium until the insurance is close to actuarially fair, but they have cost to cover (sales, administration, etc), making the odds ""unfair""." Not sure I agree.    In your analogy, there was a car accident, or the closing of a position.  So, yes, it is okay to claim on the insurance.  Claiming and being granted unemployment requires that several very specific criteria are met on a continuing basis. "If we are only talking about a few extra months between jobs which is quite common now then how do you get to ""living beyond their means""?  Either they have unemployment insurance or they don't.  It sounds like you don't like unemployment insurance.  So go bring that to a vote.  So far the majority of people want unemployment insurance in place because they see greater economic benefit in providing this service." The CBOE Rule Book, Section 5.5 explains exactly what programmes are available, how and when they will start listing and expire. The super-concise summary is: It's a per-underlying decision process, though there's some rules that may provide you with a minimum set of options (e.g. the quarterly programme on highly capitalised stocks trading for more than $75, etc.) For greater detail, for better or worse, you will have to scan the New Listings service regularly. If it goes to a millionaire who continues to pay larger bills than others while unemployed then that money goes right back into the economy.  The money for unemployment insurance is linked to compensation.  If they are millionaires then their compensation has already paid for unemployment insurance.  This idea that money is going to turn around and go to some others possibly through some other program is flatly wrong.  Either you have unemployment insurance or you don't.  You want to withhold unemployment insurance from rich people because you don't think they are worthy.  That is an interesting idea, but so far it has never worked politically.