How Selling Options Is Like Selling Insurance

Car insurance is a necessity if you want to have wheels. While you may not need comprehensive coverage, collision coverage—aka liability insurance—is a must. Unless you are a straphanger on the New York City subway, you know this fact. What you probably do not know is the correlation between trading options and selling car insurance.

What is options trading?

Options trading is the buying and selling of contracts to purchase securities like equities, bonds, commodities, and recently, cryptocurrencies. The difference between options trading and simply buying securities is that you do not actually need to own the security. Rather than owning a piece of security, as you would with a stock, you own the rights to buy a certain amount of a certain security, let us say a stock, meaning an equity at a certain price.

Options trading in Canada, for example, allows you to magnify your buying power while minimizing the risk. You could do this too by trading on margin, but with a maximized risk, as the Bitcoin traders learned after the Great Crypto Crash of 2021 set off by Elon Musk’s infamous tweets.

By purchasing the contract to trade a certain amount of security without actually owning the security, you can make a big profit on a small-margin move, let us say a 10% increase in the value of the security. Because most options last for about one month, you have a little flexibility within market fluctuations.

Car Insurance Correlation

As an option, your insurance policy is a contract on a hypothetical. Your trading option is a contract based on a hypothetical good event, a stock, cryptocurrency, or another type of security going up. Your car insurance policy is a contract based on a hypothetical bad event, a car accident, or some other type of property damage, depending on the type of coverage you have.

The car insurance company may vary with big names like Geico, USAA, Liberty Mutual, Allstate, State Farm, etc. Different auto insurance companies are going to have different auto insurance rates based on different conditions: Age group, marital status, credit score, type of car, driving history, location, etc.

Obviously, the type of coverage and the amount of coverage influences the auto insurance rate and car insurance premium. This also depends on whether it’s the minimum coverage, collision insurance also known as liability insurance with personal injury protection covering a fault accident, full coverage, comprehensive coverage that includes the optional coverage for theft, vandalism, and property damage from natural disasters. These can include floods, hurricanes, tornadoes, and earthquakes. Optional coverage can also include roadside assistance.

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If you want cheap car insurance, it would be a good idea to maintain a clean driving record and a good credit score. If you compare car insurance, different insurers will provide different auto insurance quotes. Young drivers with poor credit and a bad driving record may be ineligible for the cheapest car insurance but may be eligible for a free insurance quote provided that they can provide the vehicle identification number (VIN) for the insurance agent in question.

Just as there are lower rates and higher rates depending on particular car insurance coverage and the insurance providers, so it is with trading options that the price and commission vary with the terms of the options contract and the online broker in question: Questrade, Qtrade, Interactive Brokers, etc.

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The decision regarding which online broker is the best option is at the sole discretion of the investor. It’s a good idea for the investor to get all additional information regarding competitors and stock trades in order to get the best deal at the best value and at a competitive rate. Investing will always have risks, and trading options should never be viewed as an easy way to get rich.

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