Stocks & Commodities V. 22:11 (101): Explore Your Options by Tom Gentile
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Stocks & Commodities V. 22:11 (101): Explore Your Options by Tom Gentile
Got a question about options? Tom Gentile is the chief options strategist at Optionetics (www.optionetics.com), an education and publishing firm dedicated to teaching investors how to minimize their risk while maximizing profits using options. To submit a question, post it to our website at http://Message-Boards.Traders.com. Answers will be posted there, and selected questions will appear in a future issue of S&C.
OPTIONS THAT EXPIRE WORTHLESS
Q: What percentage of calls that are sold on underlying stocks expire worthless? — Perry Buckman
A: It is impossible to say what percentage of calls that are sold expire worthless. However, studies have examined what percent of all options expire worthless. While I have heard traders speculate that 70%, 80%, or even 90% of all contracts do so, the actual numbers are probably much lower. According to a presentation by Alex Jacobson, vice president of the International Securities Exchange (ISE), at the Optionetics Oasis 2004 Convention, a comprehensive study that included more than 30 years of data revealed that only 30% of options expire worthless. Roughly 10% of all options contracts are exercised, and the remaining 60% are closed through offsetting transactions. In sum, traders are more likely to close options through offsetting transactions before expiration than to let them expire worthless.
Got a question about options? Tom Gentile is the chief options strategist at Optionetics (www.optionetics.com), an education and publishing firm dedicated to teaching investors how to minimize their risk while maximizing profits using options. To submit a question, post it to our website at http://Message-Boards.Traders.com. Answers will be posted there, and selected questions will appear in a future issue of S&C.
OPTIONS THAT EXPIRE WORTHLESS
Q: What percentage of calls that are sold on underlying stocks expire worthless? — Perry Buckman
A: It is impossible to say what percentage of calls that are sold expire worthless. However, studies have examined what percent of all options expire worthless. While I have heard traders speculate that 70%, 80%, or even 90% of all contracts do so, the actual numbers are probably much lower. According to a presentation by Alex Jacobson, vice president of the International Securities Exchange (ISE), at the Optionetics Oasis 2004 Convention, a comprehensive study that included more than 30 years of data revealed that only 30% of options expire worthless. Roughly 10% of all options contracts are exercised, and the remaining 60% are closed through offsetting transactions. In sum, traders are more likely to close options through offsetting transactions before expiration than to let them expire worthless.
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