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

[Pekelo]

Considering the fact that OI is available on pretty much every platform,

Alrighty, so if an option contract changes hands let's say 20 times between its birth and expiry, does OI tell you about the P/L of those 20 people holding that very same contract for shorter or longer period of time? Hell no. That same contract counts as 1 in OI and it tells shit about for how much it was bought and sold while it existed.

Now you tell me there is any validity to your OI stats.

Not to mention the already mentioned connection to stocks, without knowing the full position, one can lose on puts and still make money if the stock rallies like crazy.

 

[tommcginnis]

Alrighty, so if an option contract changes hands let's say 20 times between its birth and expiry,

You might want to read the original post.

 

[Pekelo]

You might want to read the original post.

I did, there was nothing relevant in it. You might want to state a new argument.

 

[tommcginnis]

To grant *your* argument anything beyond, "methodologically vacuous" would be to infer that if I bought TSLA at $200, and sold it today @ $357, I did *not* make $157, or 78.5%, because I did not take into account the myriad, Mandelbrottian moves over the last year or two. The OP did not ask the inane "Do prices in markets rise and fall?" -- the question you implicitly answered.

Yeah? Really?

Thimk.

 

[Pekelo]

To grant *your* argument anything beyond, "methodologically vacuous" would be to infer that if I bought TSLA at $200, and sold it today @ $357, I did *not* make $157,

Oh boy this is going to be a long day....

In the above example did the TSLA stock changed hands 20 times? No. Here is how the example would work using only 2 traders:

1. You buy TSLA at $200. You sell it to me at $250.
2. Price goes down to 200 where I sell it at a loss to you and you hold it until 300.
3. At 300 I buy it from you, and hold it down to 250, where I sell it again with a loss.
4. You buy it from me at 250 and hold it until today.

Now knowing that you bought Tesla first at 200 and today it is at 350 and you still have it, one could mistakenly think you made 75% on it. And nothing is said about my loses. Yet you actually made 25% + 50% + 40%=115%

So again, just knowing the OI doesn't tell us SHIT about the holder's profitability.

 

[tommcginnis]

Now knowing that you bought Tesla first at 200 and today it is at 350 and you still have it, one could mistakenly think you made 75% on it. And nothing is said about my loses. Yet you actually made 25% + 50% + 40%=115%

And yet somehow you managed to draw relevant borders around periods of ownership, to conclude a gain for one party, and (implicitly) a loss for the other.

To borrow a phrase, "Brilliant!"

 

[ironchef]

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!

rtw posted a link which had this table:

Based on this, one can infer that writing put is a superior strategy than buying put, and writing call is also a superior strategy than buying call. Overall, writing put produced the best outcome.

This is when writers and buyers both have no opinion of what the underlying will do going forward and mechanically trade.

 

[lawrence-lugar]

View attachment 183162
This is when writers and buyers both have no opinion of what the underlying will do going forward and mechanically trade

I can assure you some of those stats are based on very loose, maybe dumb, averages.
A person with directional skill and trade management and market wisdom can easily surpass those buy % return stats....in a Day.

I'm pretty sure I'm considered an 'outlier' though... from a given, huge, random, collection sample,

 

[Martinghoul]

rtw posted a link which had this table:
Based on this, one can infer that writing put is a superior strategy than buying put, and writing call is also a superior strategy than buying call. Overall, writing put produced the best outcome.

This is when writers and buyers both have no opinion of what the underlying will do going forward and mechanically trade.

If you're levered, you cannot infer anything from this table alone. You'd need to know the other characteristics of these strategies.

 

[ironchef]

I can assure you some of those stats are based on very loose, maybe dumb, averages.
A person with directional skill and trade management can easily surpass those buy % stats.

I hope you are right Mr. lawrence-lugar. For the past year I stared at charts everyday to learn how to get better at directional skills.

Any suggestions?

Best to you.