Finally, proof that neither buying options nor selling options is superior?

Discussion in 'Options' started by crgarcia, Sep 24, 2009.

  1. Despite all the BS talk about 80% of options expite worthless (they don't mention if the other 20% make a killing).

    In pair trading, one must relatively outperform the other.

    If the CBOE Buywrite index (covered calls), they are long S&P 500 shares and short 1 month ATM calls.

    C.Calls outperform the S&P during sideways or bear markets.

    They underperform during bull markets, meaning buying options is superior to buying the S&P shares.^BXM&t=5y&l=on&z=l&q=l&c=^GSPC

    Thus neither option buying nor selling is consitstently superior to the other?

  2. You have it wrong.

    Most of the options that are in the money are closed prior to expiration. The longs sell and the shorts buy.

    Thus, if the number of options that ever existed for a given stock and expiration period is 1,000, and if 400 of them would be ITM at expiration, it's very possible that the final OI is only 400 with only 40 ITM still open.

    Using this randomly selected numbers, 90% of all options expired worthless.

    It's a meaningless - yes meaningless statistic. because it refers to the % of the OI that remains at expiration, not the total OI that existed.