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The Great Option Selling Hoax

There's plenty of bad information out there about option trading and choosing the right option strategy.

But this one takes the cake, because it is floated out there so often.

The Worst Statistic in Options Trading

This data point:

90% of all options expire worthless.

confuses plenty of traders.

The problem is, this statistic may actually be right.

But the conclusions drawn can be completely wrong.

Who are the Players?

option tradersLet's think about what happens when we start to trade into options expiration (opex).

If you bought options, you run the risk of time decay as we get closer to opex. That means you will most likely take profits or roll your position out further in time. By doing this you are closing out the open interest in the near term options, and you no longer have any exposure in those options into opex.

If you sold options and they went "in-the-money," you can manage your risk by rolling the position further out of the money or out in time. You may significantly reduce your reward, but you now have a higher odds chance of having that option expire worthless.

You also have the stock holders who may have hedged and purchased put options that are expiring worthless, but they view that as a "cost of doing business."

What does it all mean?

The overall intentions and execution tactics of the market are varied and complex.

When the 90% worthless statistic gets floated out, it doesn't take these trading mechanics into account. Yes, maybe nearly all options going into opex expire worthless.

But that doesn't mean you should always be selling options.

Option Selling Works, Right?

Absolutely. But your trading methodology and selection criteria have to make sense with respect to your opinion on implied volatility and what you think the stock will do between now and options expiration.

In my options training course I open up my trading playbook to show you when it makes sense to be selling options, and when buying options will be profitable.

Want to become a better options trader? Get your video training course at OptionFu.

 

by Steven Place

Steven Place is the founder and head trader at investingwithoptions.com/