POLL: According to a study, what do you believe % of Options expired worthless?

Discussion in 'Professional Trading' started by rcanfiel, Dec 10, 2007.

POLL: According to a study, what do you believe % of Options expired worthless?

  1. 45% expired worthless

    7 vote(s)
  2. 50% expired worthless

    4 vote(s)
  3. 55% expired worthless

    1 vote(s)
  4. 60% expired worthless

    5 vote(s)
  5. 65% expired worthless

    2 vote(s)
  6. 70% expired worthless

    5 vote(s)
  7. 75% expired worthless

    2 vote(s)
  8. 80% expired worthless

    6 vote(s)
  9. 85% expired worthless

    2 vote(s)
  10. 90% expired worthless

    15 vote(s)
  1. POLL: According to a study of options expiring at a major exchange, what do you believe is % of Options that expired worthless?
  2. MTE


    % of what? Options that are held to expiry or all options that existed at some point in time during the life of the contract?
  3. Div_Arb


    According to McMillan's book, I think it's something like 30 or 40%.
  4. http://www.traders.com/Documentation/FEEDbk_docs/Archive/012001/Abstracts_new/McMillan/McMillan.html

    There is a great myth that the majority of options expire worthless. Numbers as high as 90% have been thrown about without any substantiation. As it turns out, such numbers are gross exaggerations. Further, it's not just harmless, incorrect information, for it may lead unknowing option traders into the wrong strategies.

    FIGURE 1: MONTHLY STOCK OPTION EXPIRATION. Data shows that usually 60% or more of all options expire with some value, contrary to common opinion.

    Having been an arbitrage trader for a number of years -- and hence having had a large number of both put and call options in position at every expiration during those years -- the rumors of how many options expired worthless seemed way too high to me. So beginning November 1999, I started keeping specific track of just how many options expired worthless each month. To do this, I used the final bid-ask quote of the option on expiration day. If there was a bid of at least 5/8 point (0.625), then I considered that option as not having expired worthless. The reason I used 0.625? It is the amount by which an option must be in-the-money in order for the Options Clearing Corp. (OCC) to automatically exercise it.

    The specific monthly figures can be seen in Figure 1. The bottom line is that, during this period, about 68% of all options expired with some value! So only about 32% expired worthless -- a far cry from the preposterously inflated figures that are often bandied about.

    In an attempt to verify these figures, mostly because I only used one year of back data, I asked the CBOE if it had comparable figures regarding expiration. According to its data, which stretches all the way back to 1973, the same conclusions were drawn: only about 30% of all options expire worthless. The rest are either exercised or closed out in the secondary market.

    Thus, nearly 70% of all options expire with some value. Does this mean that an option buyer will make money nearly 70% of the time? Of course not. Just because an option is in-the-money at expiration does not mean that it represents a profit to the option buyer. But it doesn't represent a worthless option, either.

    Lawrence G. McMillan is currently president of McMillan Analysis Corp. and publishes the "Option Strategist" newsletter as well as a daily fax service -- "Daily Volume Alerts" -- which selects short-term stock trades by looking for unusual increases in equity option volume. He may be reached via his Website, www.optionstrategist.com.

    Excerpted from an article originally published in the January 2001 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2000, Technical Analysis, Inc.
  5. .
  6. it's not the number of options expiring worthless..it's what happens to naked writers selling calls and puts which expire in the money :)
  7. Ah yes, the Liberty spam emails claiming "stop buying options and start selling them!"
  8. asap


    chit chat.

    how cares about % options expire worthless. move on to an interesting subject.

    this wont take anyone to anywhere.
  9. and what is the proposed interesting subject? Almost all of ET is chit chat
  10. will post the results of that particular study in a few days
    #10     Dec 13, 2007