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Whitepaper Wednesday: Trading Performance in Taiwan Index Options

I know it's Thursday, but I'm going to try and start a new series, where I review an options-related whitepaper on Wednesdays and publish a review and findings. Honestly, you can only read introductory options textbooks so many times, as they are all about the basics and don't really delve into the nuances of options.

This whitepaper was brought up last night during my subscriber's Happy Hour, where we discussed risk management and disposition effects when trading options. The title of the paper is "Investor Trading Behavior and Performances: Evidence from Taiwan Stock Index Options."

Essentially, what they looked at was all trade data in Taiwan Index Options and looked for asymetric (they exist) returns and their causes. They wanted to analyze this because there are different behaviors that occur in the options market due to the "decaying" nature of options. They used Taiwan because it was traded by mainly nationals and the data they used contained unique investor IDs, so they could track investor performance.

The whole paper is a really nice read (surprisingly) and may help you to be a better options trader. I find this particular quote a great guideline:

We find that the following individual investors tend to have superior trading performance: those that trade more often; those that make larger-sized trades and those that usually hold multiple option positions at the same time. In addition, individual investors who trade both index futures and index options significantly outperform those that trade only index options. Finally, individual investors who made combination trades (e.g., straddles) significantly outperform those that do not. We interpret these findings as evidence that individual investors' trading performance improves with experience and sophistication. [emphasis mine]

Fortunately, most of those characteristics are incorporated into IWO Premium Trading strats!

You can download the whitepaper here.

by Steven Place

Steven Place is the founder and head trader at