Why I Don't Buy Hurricane Insurance

Don Kaufman here.

I own a multi-million dollar property in the middle of the Atlantic Ocean. No hurricane insurance. You know what those puts cost me? Seventy-five thousand dollars a year with a twenty-thousand-dollar deductible.

I'd rather eat the risk.

But here's what should absolutely terrify you: Right now, with SKEW at 150, the biggest hedge funds and portfolio managers in the world — people with billions in the bank who could theoretically self-insure anything — are still buying the equivalent of hurricane insurance in the options market.

And they're paying Florida prices for it.

The Day a Railroad Stock Broke My Brain

Yesterday, CSX Corporation dropped 13% in a single session. A railroad stock. These things don't move. Ever. You want to see volatility like this in CSX? Go back to COVID. Go back fifteen years. This is the kind of move that simply doesn't happen to boring, stable companies.

Warren Buffett said no thanks. Norfolk Southern walked away. And boom — one of the most predictable sectors in the market just traded like a meme stock.

That's exactly why SKEW exists at 150.

When Smart Money Still Buys Insurance

Here's the question that should keep you up at night: If you had a billion dollars in your trading account, would you still hedge your positions?

The professionals are answering that question with their wallets. One-fifty SKEW means hundreds of billions of dollars are flowing into out-of-the-money puts right now. These aren't retail traders buying lottery tickets. These are institutions paying massive premiums for protection they technically don't need.

Think about my hurricane insurance decision. I can afford to rebuild that house tomorrow if it gets flattened. The insurance is expensive as hell, and statistically, I'll probably never need it. So I skip it.

But when portfolio managers with similar "rebuild it tomorrow" money are still writing checks for options protection? That's them telling you something about this market that they're not saying on CNBC.

The Trade Setup Hidden in Plain Sight

Here's what most people miss: High SKEW doesn't mean we're going to crash. It means you need to flip your entire trading approach.

When SKEW was low back in 2017-2018, I made bank on risk twist spreads. Cheap out-of-the-money puts, because nobody was pricing in disaster.

I had those trades on coming into COVID — put up a dollar of risk, one came off for twelve bucks.

But at 150 SKEW? You become the insurance company. Christmas tree spreads. You're selling that expensive protection to the professionals who are desperate to buy it, but you're hedging yourself properly.

The market is literally paying you Florida hurricane insurance rates to take the other side of their fear.

When "Safe" Stops Existing

CSX taught me something yesterday. If a railroad stock can move 13% overnight, if boring utility companies can trade like tech stocks, if the most predictable sectors in the market can experience COVID-level volatility without warning — then "safe" is just an illusion we tell ourselves.

The SKEW is the market's way of pricing in that reality. When it hits 150, the smart money is admitting that anything can happen to anything, at any time.

I'll keep eating the hurricane risk on my house. But in this market? I'm paying attention to what the professionals are hedging against.

And right now, they're hedging against everything.

To your success,

Don Kaufman

Upcoming Live Training

Gianni Di Poce just texted me something that made my jaw drop.

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Chart of the Day

Skew is how options prices differ across strikes—especially how much more investors pay for deep out‑of‑the‑money puts versus at‑the‑money options. The Cboe SKEW Index turns that into a number for the S&P 500: around 100 means "normal" tails; 130–150+ means the market is paying up for crash insurance, implying fatter downside tails.

High SKEW doesn't predict a crash, but it shows big players are hedging tail risk, making far‑OTM puts expensive and changing the economics of option trades (buy nearer-the-money or use spreads; if selling, cap risk).

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