I have read that the vast majority of options expire worthless. The usual figure quoted is around 90%. I sense that these sort of odds favour the option seller. I have a question regarding selling options though. Let's say I sell options and collect the premium, is it then possible to get out of my side of the contract? For instance, can I buy the option back or pay someone to take my side of the contract? Thanks in advance.
Usually the 10% of the times they don't expire worthless hurts you. The old saying eat like a chicken shit like an elephant comes to mind. That being said, yes you can get out of contracts anytime you want. Just buy them back from the market.
<<< I have read that the vast majority of options expire worthless. The usual figure quoted is around 90%. I sense that these sort of odds favour the option seller.>>> The odds favor the option seller because he has time decay working to his advantage, while the option buyer has time decay working to his disadvantage. The fact that 90%, or what ever the % is, expire worthless is not the issue, as many investors buy options for various safety and/or "strategic" purposes, and actually want them to expire worthless, as part of their strategy. So what may appear to be a failure for some, is actually a successful outcome for others. In terms of buying back your option, yes , but you will need to evaluate whether it will result in a gain or loss for you. The longer you wait to buy it back and close the trade, the lower the value of those numbers will be, as time decay eats away at their value.,.... relative to any movement of the stock.
Just remember that, all else being equal, gamma will be going up as you get closer to expiration, meaning that if it goes in the money, your losses will pile up a lot faster. At minimum don't sell em naked - use spreads. Being short gamma is a dangerous game.
I'm not sure a discussion of gamma, or naked vs spreads has much relavence to the question being asked.... other than extremely indirectly. I'm not saying you are wrong. Just that it's a discussion for another type of question.
Thanks for the responses. So when I buy an option contract after originating it, is it then cancelled completely?
Assuming you initiated a "sell to open" contract, and you then initiate a "buy to close" order for the same number of contracts, then yes the trade is over. HOWEVER, just putting in an order will not guarantee it's closure. You have to look at what the bid/ask quotes are, and place your order accordingly. The numbers you put in, will determine whether the closure results in a profit or loss on the trade..... and the degree of profit or loss. I suggest having your broker walk you through it the 1st few times, just to be sure it is done correctly, and you understand what to do in the future when you trade solo. The reason being is, there may be quite a bit of "flexibility" between the bid/ask to play with, in terms of what numbers you put in the order, to close the trade.
i just wanna make one comment here... take it from everyone of us.. If your going to start writing options contracts... meaning selling to open options positions.. you need to read alot more from what i can tell.. i'm not trying to be a jerk.. i just can tell by the types of questions your asking you probably have no idea what Gamma is.. or delta or any of the other greeks.. or what your real risks are and how they change over the lifetime of the trade.. my suggestion is .. start reading.. pick up a book about basic options stratigies.. Mcmillian on options is one that comes to mind.. oh and if you wanna stick around for a while and not blow up.. pick up another book.. and then another book.. and then another book ... you can't read enough.. its what you don't know that will kill you.. that arbitrary statistic about 90 percent of options expire worthless isn't anything to even think about... There is actually no way that could be true considering how many in the money options end up in the money.. when calls go out of the money then there are puts simultaneously going in the money. trading options doesn't mean your always selling.. you wanna buy cheap premium and sell expensive .. in a very generally speaking way.. i can give you a library of books to read if you like.. oh and Don't believe anyone that tells you they have a "holy Grail" indicator or strategy.. haha