Stocks are at loftier valuations, and stretched beyond where they should be, although I realize that’s a sentiment that’s not universal. Some feel justified buying the market at this level, while some are avoiding out of valuation concerns.(Source)I’m personally on the side of the market being overvalued by a decent bit, which can make the incentive to buy insurance compelling. The easiest way to provide downside protection is by buying put options. If one buys a put option with a strike price 20% below the current market price, that limits one’s losses to 20%.Naturally, this insurance will come at somewhat of a cost. For example, Apple (AAPL) is currently trading at $136-$137 per share. If one buys January 2018 puts at 110 (roughly 20% below where shares are currently trading), the insurance would cost 2.3%.For Amazon (AMZN), which currently sits at $856, buying a put with a 720 strike, would cost around $30.50, or about 3.6%. It’s a bit more expensive for Amazon given it’s more volatile than Apple, which is a factor in an option’s pricing.For Tesla (TSLA), insurance on 20% downside protection – January 2018 210 puts (roughly 80% of the value of the current price of ~$277) – would cost 6.7%. One has to consider whether that price is worth it, as it’s the equivalent of docking an automatic 6.7% off their stake, although if the stock were to fall more than 26.7% in a bad situation it would breakeven and no further losses would be incurred.TakeawayThe crowded nature of the US equities market on the long side and the lack of liquidity underneath provides somewhat of a precarious situation if there is ever a rash of selling. An actual bear market is unlikely without an adverse credit-related event, but a correction of 10% or more is possible. And the market will come down much faster than it goes up, as selling can precipitate more selling and fear is a materially stronger emotion than greed.Although options are not necessarily a cheap source of insurance, and will naturally depend on how volatile the underlying stock or asset happens to be, it’s an effective way to cap one’s risk and avoid potentially ruinous situations.