Is there any empirical study available about the profitability of option sellers vs option buyers?

[lawrence-lugar]

Is there any empirical study available about the profitability of option sellers vs option buyers?"

Considering that a very high percentage of options expire worthless (a well known fact) , then it's safe to assume that the option sellers are profitable.

But the few option traders/buyers...that are successful, they have much larger percentage returns -- compared to the option sellers who collect/pocket that relatively small premium sum.

 

[RedDuke]

Take a look at these guys: http://www.ljmpartners.com/, they have been in business for well over a decade and manage 100s of millions. They are option sellers.

 

[cvds16]

it's a bit more complicated than 'they are option sellers' ...

 

[RedDuke]

it's a bit more complicated than 'they are option sellers' ...

Not really. That's actually their bread and butter. The key is how they select their options and mange risk.

 

[Jones75]

What do you think?

This book will give you the percentages for both sellers and buyers, on corporate earnings news. Some really good back testing was done by the authors. Excellent read.
Bottom line, if you know what you're doing, both sides can make money.

 

[Jones75]

This book will give you the percentages for both sellers and buyers, on corporate earnings news. Some really good back testing was done by the authors. Excellent read.
Bottom line, if you know what you're doing, both sides can make money.

View attachment 160419

The above is the wrong book. Try this one…

 

[nitro]

THIS IS A TRUE STORY:

I knew two market makers at the CBOE (I knew many more but just for this story two is fine) they are both friends of mine. One never saw an option he liked, the other took the other side of flow that kept him long gamma. He slept well at night, but got ulcers during the day on theta decay.

The guy that sold options made money steadily, making nice coin for three years. It was like having a real business with real customers. The long gamma trader eeked out a living, but blead daily like crazy, to say nothing of the fees to make markets at the CBOE (seat leases, software leases etc). They both had to work hard to earn his keep on a daily basis managing their greek and other risks.

One day, back in 2008, the long gamma trader made $2 million dollars, and the option seller blew out his account. The seller gave up close to 100% of the gains for the last three years in the span of two weeks.

That is a typical life of option traders.

 

[Maverick74]

Not really. That's actually their bread and butter. The key is how they select their options and mange risk.

Well, LJM also buys options too so they are not a great case study. They also had a 67% drawdown in 2008 that would have wiped most investors out meaning they would not have enjoyed the fruits of the recovery made after which is often the case.

 

[debitspread]

I've had dinner with the LJM guys. They're earnest, salt of the earth. They don't pretend their program is Greeks-neutral.

 

[panzerman]

I've heard Taleb has had pretty good results over the years, doubt you could duplicate what's he's doing though ...

In the past, Taleb has espoused a strategy of take no risk and at the same time take enormous risk. Practically, this meant put your money on tbills and use the interest income to purchase OTM options. Certainly a strategy anyone could follow.