Whether an options writer or buyer has better edge? Why?

Quote from ang_99:

LOL.


I think I get what you're saying. Because the competition in options (insurance) is so fierce the insurance profit margin aspect has been squeezed out of them to almost nothing.

Where as other types of insurance, the barrier to entry is so huge there is still plenty of premium left.
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Yes, in equities the vol is more or less priced correctly to within reason for equity options to exist. There is no edge to being a buyer or seller, otherwise BRK.A would be in the business :D

In the other insurances that I mentioned, guess, just take a guess at the vol component of them.

For reference, the biggest vol I have ever seen is C or BAC IV recently at about 700 vol for short dated options. When GE was trading at 6.5, its short dated options were trading at 250 IV. Take a guess at the vol your are buying when you buy most of this other insurance.
 
I think something people need to realize, whether options, futures, stocks, forex - between the market and arb activity, this hammers out almost all low-hanging fruit.

It is obvious to anyone trading, that the market is somewhere between relatively efficient and very efficient. Most traders lose their money trying to outclever the market. Finding edges are hard and they tend to disappear in the future.

Sitting down and expecting writers or buyers of options to gain an advantage through blind pursuit are going to be disappointed OVER THE LONG TERM. Short term, you might feel you are a genius, until the laws of averages push it back. Option pricing and decay tend to balance out the odds for either.
 
Quote from TraderZones:

I think something people need to realize, whether options, futures, stocks, forex - between the market and arb activity, this hammers out almost all low-hanging fruit.

It is obvious to anyone trading, that the market is somewhere between relatively efficient and very efficient. Most traders lose their money trying to outclever the market. Finding edges are hard and they tend to disappear in the future.

Sitting down and expecting writers or buyers of options to gain an advantage through blind pursuit are going to be disappointed OVER THE LONG TERM. Short term, you might feel you are a genius, until the laws of averages push it back. Option pricing and decay tend to balance out the odds for either.
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yup over the long haul there is no inherent edge in either side.
 
Quote from xflat2186:

yup over the long haul there is no inherent edge in either side.
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Advertising says "90% of options expire worthless!!!" Well, the few that do, can chew up the ones that had value... And the numbers I saw were more like in the low 70s% that expire worthless (one exchange's data)
 
Quote from nitro:

.... Take a guess at the vol your are buying when you buy most of this other insurance.
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Basically, the embeded put option on your car insurance vol is about 1000 vol!!!! :eek: :eek:

In effect, they price holding your insurance policy as if they were handling a stick of dynamite.
 
Quote from xflat2186:

90% is an old wives tale. All those %'s are since there is no reference on particular trades held to exp.
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That is why I said in the low 70s%. I believe it was the CME or CBOT who published those actual numbers, but I read it like 3 years ago.
 
Quote from TraderZones:

Advertising says "90% of options expire worthless!!!"
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And cigarette advertisers always said nicotine was not addictive.

They lie. They like so that fools will believe what they say.

Here's what you need to know: Any statistic that tells you the percentage of options that expire worthless REFERS ONLY TO THOSE OPTIONS STILL OUTSTANDING AT EXPIRATION. That means every option that was exercised early, or sold - no longer counts. Most traders exit ITM options prior to expiration. That's the reason the majority of outstanding options expires worthless. The options with intrinsic value have been sold - and often to a person short those options. That cancels the option and it is ignored in the statistics you quote.

Mark
 
Quote from dagnyt:

And cigarette advertisers always said nicotine was not addictive.

They lie. They like so that fools will believe what they say.

Here's what you need to know: Any statistic that tells you the percentage of options that expire worthless REFERS ONLY TO THOSE OPTIONS STILL OUTSTANDING AT EXPIRATION. That means every option that was exercised early, or sold - no longer counts. Most traders exit ITM options prior to expiration. That's the reason the majority of outstanding options expires worthless. The options with intrinsic value have been sold - and often to a person short those options. That cancels the option and it is ignored in the statistics you quote.

Mark
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a) Advertising and books bandy about 90%. It is not so much as a lie as "95% of traders lose their money". They are held beliefs with minimal supporting evidence.

b) I saw an exchange stat that say the amount of options that expired was in the low 70s%.

c) Your statement about "options outstanding" is your assessment of the situation. I am not an options trader so cannot support or deny your assessment of "majority" nor do I see you offering any evidence of this. Options are traded, like other instruments. Whatever the % that are exercised early is hard to know. Many options also expire in the money and some amount of $$ is in the option.
 
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