I always wondered how there could be more Ferrari's owned by people on web forums and chat rooms than the total number ever produced? Do you think people perhaps fib a little in these settings? If thats the case I may have to re-think this whole internet thing.
Absolutely not! Haven't you heard that, according to the latest, indisputable and authoritative scientific evidence, everything said on the internet is the truth, the whole truth and nothing but the truth?
It appears that Okumus, referenced in Jack Schwager's book on Stock Market Wizards, became wealthy from trading options, as shorting options was one of his strategies.
Option Trading and Individual Investor Performance http://arno.unimaas.nl/show.cgi?fid=15657 "We find that option traders incur much larger losses on their investments than equity traders. The gross return difference between these two groups of investors equals more than 1% a month, after taking risk and style differences into account. Controlling for known determinants of investor returns like gender, age, turnover, account value, income, and experience does not explain the return differential between option investors and equity investors. Instead, we attribute the poor performance of option traders to bad market timing that results from overreaction to past stock market movements. We construct a call/put ratio based on the option trades of the clients of the broker and find this ratio to be highly correlated with two other sentiment indicators, the consumer confidence index and the VIX index. In addition, estimation results for a vector auto-regressive model show that the call/put ratio is driven by past market returns." "Conclusion This paper shows that option trading has a detrimental impact on the performance of individual investors. The losses investors incur on their option investments are much larger than those from equity trading. Risk and style tilts and differences in demographic and socioeconomic characteristics do not explain the poor performance of option traders relative to equity investors. Instead, we attribute the poor performance of option traders to bad market timing due to overreaction to past stock market movements. In particular, after the collapse of the Internet bubble, option traders speculated on a further market decrease when markets actually started to recover. High trading costs also contribute to the losses suffered by option investors. We also show that various demographic, socioeconomic, and portfolio characteristics that have been linked to gambling by Kumar (2008) have a similar intensity of option investors and equity investors. Specifically, we find that single men with low income and little investment experience are most likely to engage in both option trading and equity trading. However, an important difference between option traders and equity investors is that the trading activity of the former increases after past losses while past performance has a positive, but insignificant effect on the trading volume of equity investors. By linking option trades to the common stock holdings of individual investors we rule out hedging as an important motivation for trading options. Instead, investors tend to take naked, out-of-the-money option positions, suggesting a gambling motive for trading options. Options are particularly attractive for gambling because of the leverage they provide and their skewed payoffs, thereby resembling lottery tickets. Responses of investors to statements on investment attitude confirm that entertainment and sensation-seeking are important reasons for trading options. Despite the poor performance of the average option trader, we do identify a small group of investors who consistently manage to outperform the others. Option traders who are in the top decile portfolio based on past one-year performance continue to outperform investors in the bottom decile over the next year. We further show that persistence in trading costs explains only part of total performance persistence. The bottom deciles tend to consist of male investors with little experience and low income who hold small accounts with high turnover. These results suggest that most option traders lose money due to excessive trading and a lack of knowledge. We conclude that trading hurts investor performance and that trading options hurts most."
I risk arb options that are deep out of the money against a select basket of stocks. I do not enter a trade unless it has an 85% probability of the desired outcome. As in any probability game it's about getting as much sample size as possible. The larger the sample the more validity the probabilities have. I use a version of optimal F for sizing positions. I manage a book that is about as large as I want and make very good money.
If options are priced efficiently (and I believe that they usually are) there is no particular advantage to buying or selling them. Sellers have the advantage of time decay, but they take on the gamma risk. Buyers of options may steadily lose money, but to find an option trader who blew up real good you have to look at the sellers.