| M, I have given some thoughts to this very point that you have raised several times in the past. I think, the power of P/C ratio is the statistical argument; i.e. the law of large numbers. Most option buys do not generate profit, on a net-net basis. Statisticly speaking, the profit takers on puts are the writers. The really strong hands do not need to buy back in order to lock in profit on puts that they write; they make money when writing, and then wait for expiration; it's almost always more profitable to delta-hedge an option that you have written than buying it back, if you really know which way the market is going to go. Heck, if your hand is really strong, you don't need to delta-hedge at all ;-), but I doubt it. Therefore, statisticly speaking, the buyers of options, regardless buying to open or buying to close, are the weeker hands. What do you think of this theory? |
