Comments on: Data Shows That 75% or More of Options Expire Worthless

By: Genius

Genius — Tue, 22 Feb 2011 18:30:20 +0000

It can get confusing.

I beleive the author was also counting the far out of the money options that traded for .05 or less as well.
Those might be not traded much but they can be traded otherwise they would not be listed. They might still have some volume.

The final ratio is not 50/50 because there are not the same amount of options listed above and below the price of the stock. For example, I am looking at the MCD Option Chain right now on 02/22/2011. The stock price is 75.92. for March expiration in the puts there are 15 listed puts out of th emoney and 6 puts in the money. The opposite is true for the calls. So if we look at only the strikes, then yes it should be 50/50. But you have to look at the volume of options traded.

That is where this study gets the 75% number. By adding up all the volume of traded options and looking at if they expired or were exercised you can tell what percentage of options expire worthless.

By: keith

keith — Tue, 22 Feb 2011 02:09:22 +0000

i’m all for this. not skeptical. just have question. aren’t most of or a lot of options on a particular chain well out of the money- or worth 3-4 cents and not even traded much. and these would be included in the 75% that expire worthless. so, are most of the 75% ones that no one would trade anyway so they wouldn’t really count . —as i write this i’m thinking there are as many way out of the money options as there are in the money options. the ones way in the money usually won’t expire. so why isn’t it around a 50% average instead of 75%?

By: Joe Black

Joe Black — Sat, 09 Oct 2010 06:15:17 +0000

In item #6 above you zeroed in on my sale of “in the money”
Puts only. This is only half the strategy. If a stock is
put to me I quickly sell an “in the money” Call. If the stock continues to fall, I follow the stock down and contin-
ue to sell “in the money” Calls going out 4-8 weeks. I can
do this 6 to 8 times in a year, bringing down my cost basis
until the stock is assigned to the Call buyer. I look forward to your opinion of the complete strategy – Puts and
Calls. Thanks for your help.

By: Anil

Anil — Sat, 09 Oct 2010 02:52:35 +0000

Ok. Thanks

By: Genius

Genius — Fri, 08 Oct 2010 14:41:20 +0000

The risk is a iron condor is limited. You can lose only the margin amount.

By: Anil

Anil — Thu, 07 Oct 2010 14:08:02 +0000

Genius, I am able not able to understand how unlimited risk is in Iron Condor Strategy.

Suppose I am Selling CE 6000 at 133
” PE 6200 at 170
Buying CE 6300 at 125
” PE 5900 at 104

Calculating this maximum profit will be 7400 and maximum loss will be 2600. If this calculation is correct, then where is the question of unlimited risk in Iron Condor.
Please correct me if I am wrong.

By: Anil

Anil — Thu, 07 Oct 2010 13:58:37 +0000

I trade only in Index Option which is European Style . It cannot be assigned . It will be settled in cash , where as stock has the risk of assignment when you go out . As Genius said , sometimes you get struck in the stock for a very long time . Only God will know previous rate will come or not even after many years of holding. In Index options we will not get struck. It will move with the market. There is huge liquidity in Index options.
Some bad news or good news on a particular stock will not effect the index. In Index option as the liquidity is high one can adjust in various methods but where as in stock it is less flexible than index.

By: Genius

Genius — Tue, 28 Sep 2010 19:18:36 +0000

Profitable options will be exercised and will thus not expire.

The only time an option will expire worthless is if the buyer of the option does not feel it is worth it to exercise (meaning the option is out of the money or very close to it) or if the trader screws up and does not choose to exercise (which does not happen much, especially at large firms).

By: Dave

Dave — Tue, 14 Sep 2010 09:38:04 +0000

I think this study is a bit misleading in that it only deals with options that expire. What we don’t know (and I’m not sure how to measure it) is what proportion of option traders are in it purely for the options ie with no intention of going to expiration. A profitable option will be sold prior to expiration, and will not show up on the “plus” side of studies like this – thereby putting a serious skew on the results. How much of a distortion? Enough to invalidate the results? Who knows?
As Genius said in his response to Ron – he never lets his trades get that close – he would out before any chance of expiration – meaning none of his trades would show up in this study.
Statistics are great, but I have found that you generally have to be a lot more careful about what they do not show or include than what they do.

By: NYCBRI

NYCBRI — Thu, 02 Sep 2010 20:34:12 +0000

@ Genius says:
July 11, 2010 at 12:05 am

You make a valid point of being stuck with a position that never recovers but if you sell puts simply as a means to enter a position you are interested in, than you would have encountered the market move even if you purchased the shares without the use of selling a put option.

Example: I want to purchase ED and my price range is $47 to $49 and it’s trading $49. Therefore I sell a put for $47 and collect the premium. If it falls below and the shares are put to me than I ma in a similiar position if I simply purchased at $49