Any studies on who normally wins - option writer versus purchaser?

Discussion in 'Options' started by Saltynuts, Feb 25, 2018.

  1. Mugono

    Mugono

    I suspect care should be taken when extrapolating research findings. The results are likely based on an 'always in' / indiscrimatory basis.

    If you'e trading the stock, you're likely more active; and much more discriminatory in terms of timing and amount invested.

    The two are different and to compare likely an apple to orange comparison.
     
    #41     Feb 26, 2018
  2. cvds16

    cvds16

    no
     
    #42     Feb 26, 2018
  3. This means nothing, the vast majority of options is closed before expiry. You can totally make money on an option that eventually expires worthless just like you can lose money on an option that end up in the plus. The metric about options expiring worthless doesnt mean anything unless all the options that were meant to expire worthless are taken out of the equation (like options in an Iron Condor)



    The writer is being paid for this, its packed into the greeks of option pricing.

    No comment as the remark is generalistic and impossible to fault or confirm.

    There are studies showing retail traders are the routine losers in option trading. A nice article on the market is this one:

    https://vantagepointtrading.com/why-most-traders-lose-money-and-why-the-market-requires-it/

    In a strong bull market it is possible that everyone makes money. The total sum of money in a market increases if the stock prices go up. In the long term the market beats the inflation and thanks to our economies growing we can indeed all make money. However even then you have to correlate that to what the average larger market player makes. So no the market is not a zero-sum game - if the global economy fails to keep growing and us humans no longer invent new ways to increase productivity, then things would start being different.
     
    #43     Feb 26, 2018
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  4. tommcginnis

    tommcginnis

    Here's a study of sorts, from last Friday pm:
    OI_SPXCapture.PNG


    The figures above stem from Open Interest on SPX options in the 350point, 71 strikes (inclusive) from 2525 to 2875. Cell BQ102 shows that Feb28 call options ITM numbered 84k, or 31% of the total for that 350 point range, while the puts (BR103) numbered 56k, or 17%.

    For the six expiries covered, ITM options currently averaged 15% for puts, and 33% for calls -- or 85% OTM for puts, and 67% OTM for calls.

    Would these numbers be reasonable 'ball-park' estimates for expiration status? Yes. The Open Interest numbers tend to grow or stay static; I cannot recall ever seeing OI shrink. Further, as the market rises and falls, the market's requirements for seeking/offering risk/liquidity via options would similarly march up and down the strikes -- with the actual proportions not changing all that much. {I offer that as a Straw Man supported mostly by personal observation: I've never once seen things flip.}

    It is a simple procedure to test this wispy hypothesis empirically, though -- just gather OI on the front option series at 15:59 each Monday, Wednesday, Friday for a week or three, and run some sums. That's all there is to it.

    (The attached .pdf has a complete snapshot of data...)
    (Also, ignore BT95:BZ99 -- that data is pulled/arranged for charting)
     
    Last edited: Feb 26, 2018
    #44     Feb 26, 2018
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  5. spindr0

    spindr0

    Across the web I often see the statement that 90% of options expire worthless so you should be a seller not a buyer. These tend to be sites that are trying to sign you up ($$$) for their winning make a ton of money strategies in only 60 minutes per day :confused:

    Stats provided by the CBOE are that:

    1) About 10% of options are exercised (gain or loss)
    2) About 60% are closed before expiration
    3) About 30% expire worthless

    That means that the preponderance of options remaining open at expiration expire worthless - but 70% of the options did not expire worthless.
     
    #45     Feb 26, 2018
  6. Pekelo

    Pekelo

    I have seen similar studies and they are worthless. Without actually knowing who owned what position there are simply no ways to calculate and answer the OP's question. Generally speaking post #43 above explained it.
     
    #46     Feb 26, 2018
  7. spindr0

    spindr0

    In the narrow focus of placing your bet and going golfing for a number of years, it doesn't make much of a difference. But if you have some semblance of ability, doing better than the market either quantitatively or risk adjusted is possible.
     
    #47     Feb 26, 2018
  8. tommcginnis

    tommcginnis

    Considering the fact that OI is available on pretty much every platform, that is a bizarre thing for you to write. Try actually doing your own work before you opine. (Or, go get that second cup of coffee. :rolleyes: )
     
    #48     Feb 26, 2018
  9. ironchef

    ironchef

    I assumed you were referring to selling iron condors had positive expectancy?
     
    #49     Feb 26, 2018
  10. ironchef

    ironchef

    Thanks, that make sense.
     
    #50     Feb 26, 2018