options odds

[william the wie]

According to investopedia a three year study of options came up with the following results:

74.9% of calls expire worthless

80.2% of puts expire worthless

I find this a useful guide to selling in May and buying in November but I find it also indicates that marriage to position is a bigger problem than I thought. My own proprietary portfolio research indicates that this problem is way bigger than the above odds indicate. So here's my question why on Earth does anyone get married to a position with an expiration date?

 

[MarathonMike]

Those are interesting stats. Do they break them down further as in longer term expiration vs shorter term? I've never invested in options but I'm going to experiment with a small portion my portfolio.

 

[william the wie]

Those are interesting stats. Do they break them down further as in longer term expiration vs shorter term? I've never invested in options but I'm going to experiment with a small portion my portfolio.

Always use covered options to reduce risk otherwise your losses can be unlimited.
Go for lower Beta issues.to minimize market exposure.
You need 10-30 positions to reduce outlier risk.
Your annualized risk is 25.1% so make sure make sure your minimum annualized return for each position exceeds 34% by a margin you are comfortable with.
That 34% sounds like a steep hurdle until you work out how to compute it.
Which is option premium/cost of cover- premium followed by figuring out what your annualized return is to expiration. For one month take expected return to the 12th power on your calculator, the sixth power for two months and so on but always round up months for added safety.

If done right your friends will find your portfolio talk boring in the extreme, which is as it should be.

 

[MarathonMike]

Those are interesting stats. Do they break them down further as in longer term expiration vs shorter term? I've never invested in options but I'm going to experiment with a small portion my portfolio.

Always use covered options to reduce risk otherwise your losses can be unlimited.
Go for lower Beta issues.to minimize market exposure.
You need 10-30 positions to reduce outlier risk.
Your annualized risk is 25.1% so make sure make sure your minimum annualized return for each position exceeds 34% by a margin you are comfortable with.
That 34% sounds like a steep hurdle until you work out how to compute it.
Which is option premium/cost of cover- premium followed by figuring out what your annualized return is to expiration. For one month take expected return to the 12th power on your calculator, the sixth power for two months and so on but always round up months for added safety.

If done right your friends will find your portfolio talk boring in the extreme, which is as it should be.

Good stuff there, now where's my calculator