V. 19:1 (60-61): How Many Options Actually Expire Worthless? by Lawrence G. McMillan
Product Description
It’s a good question. And this options expert gives us the
answer.
T here is a great myth that the majority of options expire worthless. Numbers as high as 90% have been thrown about without any substantiation. As it turns out, such numbers are gross exaggerations. Further, it’s not just harmless, incorrect information, for it may lead unknowing option traders into the wrong strategies.
Having been an arbitrage trader for a number of years — and hence having had a large number of both put and call options in position at every expiration during those years — the rumors of how many options expired worthless seemed way too high to me. So beginning November 1999, I started keeping specific track of just how many options expired worthless each month. To do this, I used the final bid-ask quote of the option on expiration day. If there was a bid of at least 5/8 point (0.625), then I considered that option as not having expired worthless. The reason I used 0.625? It is the amount by which an option must be in-the-moneyÝ in order for the Options Clearing Corp. (OCC) to automatically exercise it.
T here is a great myth that the majority of options expire worthless. Numbers as high as 90% have been thrown about without any substantiation. As it turns out, such numbers are gross exaggerations. Further, it’s not just harmless, incorrect information, for it may lead unknowing option traders into the wrong strategies.
Having been an arbitrage trader for a number of years — and hence having had a large number of both put and call options in position at every expiration during those years — the rumors of how many options expired worthless seemed way too high to me. So beginning November 1999, I started keeping specific track of just how many options expired worthless each month. To do this, I used the final bid-ask quote of the option on expiration day. If there was a bid of at least 5/8 point (0.625), then I considered that option as not having expired worthless. The reason I used 0.625? It is the amount by which an option must be in-the-moneyÝ in order for the Options Clearing Corp. (OCC) to automatically exercise it.
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