Best Thread The Options edge (Writing Vs Buying)
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TheBramble
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pt & mt - really. There is no such thing as an option trader who uses bulletin boards. They're always far too busy.
You see, Time is at a Premium.
Miss you both, lots. Byeeeee.....
You see, Time is at a Premium.
Miss you both, lots. Byeeeee.....
TheBramble said:
Hello Tony,
What you say is not quite true. The UK options close at 4:30pm. and no options trades can be done over the weekends.
In the USA i think the options mrkt finishes at 9pm UK time.
So infact theres plenty of time for the option trader to visit this interesting option forum here at T2W.
I was told by a good friend that this is the place to visit for option trading.
but, i see very little evidence on options so far. I was also told that there are a few experts option traders here at T2W. Happy trading
hungrybelly
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TheBramble
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mtbelly said:So infact theres plenty of time for the option trader to visit this interesting option forum here at T2W.
I was told by a good friend that this is the place to visit for option trading.
So, which is it? Better still...
A Dashing Blade
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mtbelly said:
Got that one wrong as well Bull
TheBramble
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Dunno about a myth. More like sloppy research.
While there are certainly many viable options-buying strategies available to traders, options expiration data I obtained from the CME covering a three-year period suggests that buyers are fighting against the odds. Based on data obtained from the CME, I analyzed five major CME option markets - the S&P 500, eurodollars, Japanese yen, live cattle and Nasdaq 100 - and discovered that three out of every four options expired worthless. In fact, of put options alone, 82.6% expired worthless for these five markets.
source: http://www.investopedia.com/articles/optioninvestor/03/100103.asp
The numbers represent the percentage of options that expire worthless.
Year CME options S&P options S&P puts S&P calls
1997 76.3 81.7 94.1 54.8
1998 75.8 82.2 93.1 43.9
1999 77.5 84.7 94.5 66.7
Average 76.6 83.3 94 55.3
source: Options on Futures, by Summa and Lubow
The Chicago Mercantile Exchange estimates that approximately 80% of options held through expiration will expire worthless.
source : James Cordier & Michael Gross - May 26, 2006
Now, why did all the three sources above make the claims they did when:-
While 80%-90% of option contracts that are held until expiration do become worthless, only 30% of all options are held until expiration. Another 60% are sold or offset, and 10% are exercised. This means that 25% of all option contracts - not 90% of them - expire worthless.
source: Jim Stanton - April 4, 2006
That 'feels' a little more like real life.
What it doesn't give us though is any flavour of how those individual trades stack up. 10% are exercised. At profit or loss to whom - the buyer or the seller? 60% sold or offset. Again, at profit or loss to whom - the buyer or the seller?
Don't think I'm sticking my neck out when I suggest the sellers of option premium are more likely to come from the savvy, professional or at least, the more experienced segments of the trading community. Whereas the new players/traders in options and trading generally, are more likely to be buying options. Forgetting the law of the Jungle, we still have the fact that 25% of all options expire worthless to the buyer.
This pretty much agrees with my experiential take on both sides of the options debate and provides sufficient statistical bias to confirm my personal position that I'd rather be selling than buying premium in most cases.
While there are certainly many viable options-buying strategies available to traders, options expiration data I obtained from the CME covering a three-year period suggests that buyers are fighting against the odds. Based on data obtained from the CME, I analyzed five major CME option markets - the S&P 500, eurodollars, Japanese yen, live cattle and Nasdaq 100 - and discovered that three out of every four options expired worthless. In fact, of put options alone, 82.6% expired worthless for these five markets.
source: http://www.investopedia.com/articles/optioninvestor/03/100103.asp
The numbers represent the percentage of options that expire worthless.
Year CME options S&P options S&P puts S&P calls
1997 76.3 81.7 94.1 54.8
1998 75.8 82.2 93.1 43.9
1999 77.5 84.7 94.5 66.7
Average 76.6 83.3 94 55.3
source: Options on Futures, by Summa and Lubow
The Chicago Mercantile Exchange estimates that approximately 80% of options held through expiration will expire worthless.
source : James Cordier & Michael Gross - May 26, 2006
Now, why did all the three sources above make the claims they did when:-
While 80%-90% of option contracts that are held until expiration do become worthless, only 30% of all options are held until expiration. Another 60% are sold or offset, and 10% are exercised. This means that 25% of all option contracts - not 90% of them - expire worthless.
source: Jim Stanton - April 4, 2006
That 'feels' a little more like real life.
What it doesn't give us though is any flavour of how those individual trades stack up. 10% are exercised. At profit or loss to whom - the buyer or the seller? 60% sold or offset. Again, at profit or loss to whom - the buyer or the seller?
Don't think I'm sticking my neck out when I suggest the sellers of option premium are more likely to come from the savvy, professional or at least, the more experienced segments of the trading community. Whereas the new players/traders in options and trading generally, are more likely to be buying options. Forgetting the law of the Jungle, we still have the fact that 25% of all options expire worthless to the buyer.
This pretty much agrees with my experiential take on both sides of the options debate and provides sufficient statistical bias to confirm my personal position that I'd rather be selling than buying premium in most cases.
TheBramble said:
Probably a pretty safe assumption Tony. If I could offer up my own observations and preferences:
Futures and equities seem to be a bit different in this regard. Of the traders I know, (and I don't know lots and lots, but enough to get a feel) Futures players will quite happily go short naked premium if they believe the planets line up the right way, avoiding being on the business side of the silly season like the plague. (eg short calls in weather markets at certain times of the year)
In equities however, traders would prefer to be somewhat hedged, spreading off their risk... and not averse to buying when appropriate, morphing positions as they go along.
This pretty much mirrors my own preference. Maybe I just see it the way I want to see it. But short unprotected premium in equities is just asking for a whack in the head from a fat tail. IMO
My $0.02
Cheers
Profitaker
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The largest open interest is found in OTM options, both Puts and Calls. Take ESX Jun06 for example – 93% of Call options are OTM and 87% of Put options are OTM. It doesn’t take a rocket scientist to conclude that most of the ESX Jun options will expire worthless! But what does that tell you about writer / buyer edge ?
I agree with Tony that writers are “more likely to come from the savvy, professional or at least, the more experienced segments of the trading community”.
I agree with Tony that writers are “more likely to come from the savvy, professional or at least, the more experienced segments of the trading community”.
A Dashing Blade said:Got that one wrong as well Bull
Dash Bld,
So you know for sure that NOT ONE person from 50,000 members have visited TT after reading your comments? BULLDOZER, is a writer of OTM positions!! [see TT forum] just like Profittaker is now half or almost admiting that the writers have the edge over the buyers.
AND another thing writen options dont have to finish worthless for the writers to WIN! aslong as they are bought back [ to close out positions] for less than the initial prems recieved!! this would give the writer the edge over the buyer! Perhaps this is too complex for some peeps to grasp?
Enjoy your trading and please dont visit TT as it may be too difficult for you to grasp the correct concept of trading options.
hungrybelly
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Profitaker
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Don't worry mt, I won't !
Bye bye.
Bye bye.
A Dashing Blade
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mtbelly said:
mtbelly
because of the lack of posting on that site. "Last post - 3 weeks ago" etc.
£10 quid in my POCKET & I'll give odds that mtbelly is ONE AND THE SAME as Bulldozer . . . any takers?
:cheesy: :| :-0peto said:
see you there soon! Do you enjoy your visits?http://www.trade2win.com/boards/showthread.php?p=253639#post253639
hungry belly
