What do you think?
Is there any empirical study available about the profitability of option sellers vs option buyers?
- Thread starter Lloyd W. Coutee
- Start date
it's not such a bad question. But it's not that easy. Why buy insurance when I can sell it!? For any insurance company to be profitable they must collect more in premiums than thy pay out in claims. But it's not that easy, since most of the money is made investing premiums.
most people that buy premium have a tendency to bleed to death, while options sellers have the risk of a fast exlosion going against them to put it simply ...
some people claim that options don't have the risk of black swans priced into them (Thaleb) even if you take account of skew so prefer to be buyers but you better have a lot of patience ...
the only easy money to me used to buy underpriced options and almost at the same time sell overpriced options on the same underlying deltahedging the stuff ... I doubt you can do that nowadays ...
if you think there's free money lying around in options you might be in for a big surprise ...
some people claim that options don't have the risk of black swans priced into them (Thaleb) even if you take account of skew so prefer to be buyers but you better have a lot of patience ...
the only easy money to me used to buy underpriced options and almost at the same time sell overpriced options on the same underlying deltahedging the stuff ... I doubt you can do that nowadays ...
if you think there's free money lying around in options you might be in for a big surprise ...
the question was is there a study which tracks performance of longs vs shorts?
for instance, in 2015 how did people who bought calls and puts do compared to people who sold calls or puts? Should be very simple for somebody to figure out. My guess is over ten years they all lose the spread and commish and come about about even.
for instance, in 2015 how did people who bought calls and puts do compared to people who sold calls or puts? Should be very simple for somebody to figure out. My guess is over ten years they all lose the spread and commish and come about about even.
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While you are probably right about the conclusion ... market makers are the winners imho in the long run ...
I have my doubts though about the 'simple part': you never know why somebody is buying or selling an option and if he actually made money unless you saw the whole picture since he could be trading the underlying against it in some way ...
I've heard Taleb has had pretty good results over the years, doubt you could duplicate what's he's doing though ...
I have my doubts though about the 'simple part': you never know why somebody is buying or selling an option and if he actually made money unless you saw the whole picture since he could be trading the underlying against it in some way ...
I've heard Taleb has had pretty good results over the years, doubt you could duplicate what's he's doing though ...
For the current question, the problem is that the question doesn't clearly define profitability and, worse still, many empirical studies, like that other forum, ignore expected value. As a consequence their analysis is at best very misleading and at worst completely wrong.
Most tradeable options are very liquid and have a minimal bid-ask spread... If you feel they are too dangerous to sell, buy them! If you feel buying them is a sucker`s game, sell them! With a 0.01 or 0.05 spread, there is no edge either way, it just depends on what your goal is. The question doesn't make sense since the market is telling you there is no edge either way.
It's all the same, just different psychology.
Lower accuracy, bigger payout, smaller losses.
Higher accuracy, smaller payout, bigger losses.
Lower accuracy, bigger payout, smaller losses.
Higher accuracy, smaller payout, bigger losses.