The Myth of Option Expiry

Written by Guy Bower


I recently readrepparttar following statement on a website that sells an expensive option trading system:

“70% of options expire worthless torepparttar 111903 buyer! That means 70% expire profitable torepparttar 111904 seller.”

Garbage! Unbelievable garbage! Absolutely unbelievable garbage! The logic in this statement is just plain incorrect and of courserepparttar 111905 website does not have statistics to back their claim.

To be fair this website was notrepparttar 111906 only place I have come across a statement like this. I have in fact seen a figure of up to 90% quoted. However even if it is a common belief does not make it correct.

Let’s first have a think aboutrepparttar 111907 logic, then let’s look at some stats and come to some real conclusions.

Profit Logic Let’s assume 70% of options do expire worthless. How can anyone draw conclusions as torepparttar 111908 profitability of a long trade or a short trade? You simply cannot.

If you sell an option at say 10pts, you could then watch it go to 100 or 200pts and wipe out allrepparttar 111909 money in your account. The market may then turn around and eventually seerepparttar 111910 option expire worthless, but that does not mean your trade has been profitable. This is not nit picking. This is real life trading - things move up and down and you cannot always afford to sit on a position and hope for a zero value at expiry.

It is simply not possible to draw a conclusion about profitability based on expiration statistics.

The statistics In a book entitled Options on Futures by Summa and Lubow they quoterepparttar 111911 80% figure and it is backed up by numbers fromrepparttar 111912 Chicago Mercantile Exchange (CME).

In a section entitled “The Numbers Speak for Themselves”, they show a table of data sourced fromrepparttar 111913 CME. The numbers representrepparttar 111914 percentage of options that expire worthless. The data fromrepparttar 111915 book is as follows:

YearCME optionsS&P optionsS&P putsS&P calls 199776.381.794.154.8 199875.882.293.143.9 199977.584.794.566.7 1997-9976.683.394.055.3

Assuming we have no reasonrepparttar 111916 doubt these statistics, then this seems to back uprepparttar 111917 popular belief. On careful reading however, it appearsrepparttar 111918 figures represent only those options that are held to expiration and not those that are closed out OR exercised before expiration (remember we are dealing with American style options here so some can be exercised before expiration).

Maybe we do not haverepparttar 111919 whole picture...

I also came across some more stats fromrepparttar 111920 Chicago Board Options Exchange (CBOE) that I thought were interesting. Their figures are: •Approximately 10% of options are exercised; •50-60% of options positions are closed prior to expiration; •The remaining (about 30 – 40%) are held to expiry.

At first these figures might look rather contradictory, but they are not. The CME numbers are based on options that are held to expiry. That is they do not include options that are exercised or closed before expiry – and that’s 60-70% of all options according torepparttar 111921 CBOE.

If we take both exchange’s statistics as fact, then drawing a conclusion from onlyrepparttar 111922 expiry numbers could be a bit biased.

Think aboutrepparttar 111923 CBOE numbers for a moment. The 10% that are exercised early would in all but very rare cases be in-the-money (why else would you exercise?) If we assume therefore that only in-the-money options are exercised, then this would leave more out-of-the-money options heading to expiry than in-the-money.

Mortgage After Bankruptcy

Written by BkHome


Most people probably assume that obtaining a mortgage to purchase a home, refinance or to consolidate debt after a bankruptcy is out ofrepparttar question. In fact, many people are able to obtain these mortgage services, even 1 day after a bankruptcy discharge in some cases. Loan programs and lenders are available that require little or no time afterrepparttar 111902 discharge of a bankruptcy. Here are a few tips to speed uprepparttar 111903 road to credit recovery andrepparttar 111904 mortgage services you desire.

First, continue timely paying on items such as your home and cars that were not discharged inrepparttar 111905 bankruptcy. Having at least a couple credit items you are paying on- time will help. Second, limitrepparttar 111906 amount of other debts such as credit cards or bank loans. Too much debt will make it more difficult to qualify for a loan, particularly revolving credit accounts such as credit cards. Your debt-to-income ratio is one part ofrepparttar 111907 puzzle lenders will look at in determining your ability to repay a mortgage.

Another important aspect is providing all necessary documents in a timely manner to your loan consultant. Items

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