buying vs selling statistics?

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xpsyuvz

I've heard that supposedly in the past that selling/writing options has fared better than buying options. (The recent "ansbacher" thread had similar implications in it.)

Has anyone seen any actual statistical studies/numbers to support this? (Which stocks were observed? Was it that the sellers actually earned more money -- or just earned more often? etc.)

If this idea is true, then mostly I'd like to just roughly know:
how much better has selling been?


So does anyone know anything more about this?
 
There's an obvious limitation of this study. That is, it considers only options that are held to expiry, which may only represent a small portion of the total number of contracts that existed at some point during the life of an option. So although over 76% of options expire worthless (according to the study) it doesn't mean that you have an edge in there. That is, the option can go from OTM to deep ITM, causing a substantial loss to the writer and then expire OTM. So the question is, would the option writer still hold that option to expiry!?
 
just21,

Hey, thanks for that link.

It's the first thing I've read that gave any actual numbers.
But I (also) wonder about how useful those numbers are...

For example if most of the options were opened "out of the money" (which I believe is perhaps normally the case?) then it would be mathematically expected that more options are supposed to expire OTM.
(I.e. The OTM options are expected to win less often, but if they reach there strike price then the larger winnings are expected to make up for this. Or in other words: this would be like saying that bettting on a single number in roulette is worse than betting on black-vs-red because the single number bet will 97% of the time end up being worthless/lose. However actually -- both bets have the same long term expected return.)


Since the article forgot to mentions this, it seems like it just treated the numbers as though there should have been a 50% outcome - but this would have only have been expected if all of the options opened were opened ATM.
 
To try to answer my own question:


At optionexpress.com I noticed they have 1-year graphs that show what the 30 day historical volatilities and implied volatilities were.

On the few charts I looked at, it did seem that the I.V. was usually (very roughly) about 3%-4% higher than what the future volatility actually turned out to be. (This was with charts with volatilities that were generally in the 15% range.)

So with this in mind, if the option prices assume an I.V. that is about 3%-4% too high, I think that means the option prices turn out to be about 20% to 30% more expensive than what a fair value price calculator might suggest ( -- which of course would give the option sellers an advantage).


Anyway, that's just my rough estimated thoughts on this so far...
 
Quote from xpsyuvz:

To try to answer my own question:


At optionexpress.com I noticed they have 1-year graphs that show what the 30 day historical volatilities and implied volatilities were.

On the few charts I looked at, it did seem that the I.V. was usually (very roughly) about 3%-4% higher than what the future volatility actually turned out to be. (This was with charts with volatilities that were generally in the 15% range.)

So with this in mind, if the option prices assume an I.V. that is about 3%-4% too high, I think that means the option prices turn out to be about 20% to 30% more expensive than what a fair value price calculator might suggest ( -- which of course would give the option sellers an advantage).


Anyway, that's just my rough estimated thoughts on this so far...
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Keep in mind that vols have been following over the past few years

--

http://themarkettruth.blogspot.com/
 
you can't determine whether premium buyers or sellers were more profitable just from looking at historical IV & SV charts.
intra-day average true range is a big factor....ie let's say vol is 16% so long gamma players need a ~1% daily move to pay for their theta. market could go up 3% and then only close up .5%, so you would think that short gamma "won" the day but meanwhile long gamma traders were handed huge intra-day scalp opportunities that are not reflected whatsoever in the SV chart.

also, the cme study is bogus for the reasons already mentioned.

i guess we'll never know ;)
 
As others have stated, it is virtually impossible to scientifically prove such an edge. Many options are opened in the money by the way.

In the end, sellers with exits which are utilized have an edge, sellers without exits will not be compensated for their risk and have a huge risk of ruin.
 
Thanks for the replies guys.

I really don't know too much about this stuff -- so I'm not surprised that my rough estimation looking at the HV and IV chart probably isn't really accurate.


aid1961 wrote:
i guess we'll never know ;)
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Hmm... it seems like you could be right here.

Plus if there was a definite way of knowing, it seems like traders would quickly snatch up the inefficiencies...



Prevail,
In the end, sellers with exits which are utilized have an edge, sellers without exits will not be compensated for their risk and have a huge risk of ruin.
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Can you explain how you think sellers that use exits have an edge?
 
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