Why isn't everybody selling options?

Discussion in 'Options' started by jr07, May 12, 2010.

  1. jr07

    jr07

    If 80% of options expire worthless, as I read somewhere recently, why doesn't everybody sells calls and puts every month and duplicate?
     
  2. first i think its a lot more than 80%.

    second its because when you lose selling options you will lose more than you win 80% of the time :).
     
  3. dmo

    dmo

    Even if that statistic is true, it is meaningless.

    Had you sold hurricane insurance policies in New Orleans for the years leading up to Katrina, they all would have expired worthless. But Katrina would have wiped out all your profits in a day, and then quite a bit more. Same for oil disaster insurance policies in the Gulf - you would have made lotsa money until a few weeks ago. Today you'd be wiped out.

    Same is true of selling options, which are also insurance policies.
     
  4. Tell that to the people who sold puts last week and got a huge scare.

    If it was so easy, wouldn't everyone be doing it? What do you know that the people at Goldman Sachs don't know?

    Are you saying that everyone who buys options is a sucker?
     
  5. Devin Brady

    Devin Brady ET Sponsor

    That 80-percent number is misleading because it doesn't take into account the amount of contracts that were offset before expiration. Sure most contracts that are held to expiration are worthless, but the amount that were offset for a profit before expiration is not counted.
     
  6. Lots of people were screwed selling options last thursday.
     
  7. I think it has something to do with the equivalence of naked puts and covered calls.

    :D
     
  8. Devin Brady

    Devin Brady ET Sponsor

    I heard many MM and CTA's that sell premium blew up last week.
    RIP
     
  9. But how do you get wiped out.

    Lets say you have 100K cash, so you sell 8 SPY puts near the money (116) for max premium. you get 2296 dollars income that month.

    So what if you end up put the 800 shares, you have the money to cover. You can then just sell some otm calls on it and cash in month 2. And if it goes a bit too low just wait your time if you wish and start again.

    You do get something for your money when selling the options. So comparing it to Katrina makes no sense.

    Do this over the years and it will add up.
     
  10. I had short puts over that time period. Guess what, I did not blow up, I actually sold more during the drop. In fact they are back out of the money.

    You blow up if your an idiot and over leverage.

    I do not use Margin.
     
    #10     May 12, 2010