Any studies on who normally wins - option writer versus purchaser?

[Sweet Bobby]

I think most people who discuss options on ET don’t trade options. SMH ‍

 

[lawrence-lugar]

Are there any long term historic studies of this?

On the one hand

on the other hand

I think everyone kind of knows already that selling options, and collecting that instant insurance premium, is generally much more safer and secure and steady...

Rather then the game of buying options on a property or entity, and hoping to expect to predict the future movement/volatility/explosion of it.

Again, it all falls on that classic Risk vs Reward spectrum.
I can say though...trading options...is Way more profitable, rather then selling them for a relatively measly profit.
It's certainly more difficult to trade options, but insanely way more profitable -- if you're able to,

I bet most people on this ET site would give their left nut to be able to trade options successfully and fruitfully.
Each trade, or win, feels like a tiny...mini lottery windfall. -- it's better than drugs or sex or alcohol or Sweet and Sour Beef.
2018 Holy Grail Trading Academy, Millionaire Money Machines...a never-ending Waterfall of Cupcakes, and Steaks

 

[Spectre2007]

Not using margin. Not writing.

 

[gkishot]

isnt that literally impossible?

Why not? Buying calls is profitable in an upward trending market. So is selling puts.

 

[spindr0]

Interesting, I am going to go through your logic and see where it leads me.

A quick question: How is that compared to what Pekelo said, simply kept buying OTM puts?

Here's a common option arb. An option market maker executes a conversion or a reversal in order to arb the difference. The counter parties bear the risk. My logic is that like the market maker, the insurance company is selling something for more than it costs, in terms of payout on either side.

Buying OTM puts is another story. Nothing you don't already know but long puts are like collision on your car or home insurance or even your health. If you want a smaller deductible, you pay more. If you want a lower premium, your deductible is higher. But any way you cut it, it's an out of pocket expense (unless you're clever enough to collar your position and that's a significant drag on performance. It's equivalent to buying calls and in both cases, it only works if the underlying cooperates. I have no clue how that equates to being the insurance company.

 

[spindr0]

Also if dividend paying stock, you get the dividends...

The stock is your house. The put is your fire/flood insurance. In a general housing market, the stock/house value slowly increases. The dividend is your ability to live in the house or renting the house out (rental income).

Selling option premium is income. Dividends are not since they are yield not total return (stock exchange reduces share price on ex-div).

 

[ajacobson]

If you can find it read the original BS model article. Theoretical value is an indifference price for a given volatility. That means with an infinite number of repetitions - you wouldn't care.

 

[spindr0]

I bet most people on this ET site would give their left nut to be able to trade options successfully and fruitfully. Each trade, or win, feels like a tiny...mini lottery windfall. -- it's better than drugs or sex or alcohol or Sweet and Sour Beef.

I don't think so about better than sex but it might be one of many things where it's the most fun that you can have with your clothes on!

String together a lot of those mini lottery windfalls and you generate a lot of feel good "Dolphins" (sic) in your brain.

 

[SoesWasBetter]

I think most people who discuss options on ET don’t trade options. SMH ‍

True for 99.9% of things discussed here.

 

[ehsmama]

Are there any long term historic studies of this?

On the one hand, you hear that some large percentage of options expire worthless. Plus, it seems the option writer should be paid for letting the purchaser use leverage. Maybe there is a "cost to carry" that should be compensated.

on the other hand you have mutual funds that sell covered calls, and their performance is usually a goid bit sub par.

I know the above are not mutually exclusive. Just wondering if there is any long term analysis on this. Maybe on average writing versus buying is pretty much a push, which one might expect given I believe options are a zero sum game and assuming the market is efficient.

Thanks!

The one who is smarter and who has done his or hers homework properly wins. I only buy options for a living and it works handsomely for me..