Do Option Sellers Have a Trading Edge?

Discussion in 'Options' started by xelite777, May 9, 2014.

  1. TskTsk


    Hardly news. The premium in options is documented everywhere these days. On avg. it's a bit above returns on equity. Bottom line is, don't buy options unless you have hedging needs or a damn good directional setup. End of story.
  2. newwurldmn


    Why are you asking the question?

    You are the one who stated it was a fact because of the black scholes equation
  3. FXforex


    Q: Do Option Sellers Have a Trading Edge?

    The only edge would be the time decay.

  4. lol to Summa.

    - Doesn't account for bias to OTM volume on contract basis rather than notional (contract * value). Option at a $25 expires worthless vs. an ITM at $600. The $600 is either closed or exercised.

    - Pensions, endowments and other passive participants write calls against long-held equity positions. They write OTM to avoid getting shares called away (taxable event).

    - The majority of OTM options that are bought are closed prior to expiration, but ALL ITM options that are not covered are exercised automatically.

    - Complex orders are mostly in the strip (verticals), producing large numbers of OTM OI (ATM call fly).

    et al.
    .sigma likes this.
  5. The mathematical assumption behind the famous (or should we say infamous) Black Scholes model is completely flawed, you should know that by now.

    In fact, and it's one of the best kept secrets, only the option brokers/sellers know the REAL value of an option. I even read somewhere that the true value of an option must not be revealed to anyone outside of the brokerage option house, for obvious reasons. Nothing illegal about that practice though.
  6. panzerman


    Also IV potentially.
  7. Whaley/RGW, pseudo, CRR, MC(Carriere) will all converge. Guy is a moron. You are proposing some tool's opinions as white papers. Why is this guy selling shit instead of making millions exploiting BSM?
  8. Bottom line, as far as option trading is concerned, it's better to be on the seller side than on the buyer side, as the odds clearly favor the sellers (writers).

    However, if used properly and under the right circonstances, buying put or call options AND buying/shorting/holding the underlying financial instrument at the same time can also create some terrific trading opportunities.
  9. Oh, bottom line. wtf didn't you say that in the first place?
    #10     May 9, 2014
    .sigma likes this.