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Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Eddie Kim who wrote (72895)	10/19/1998 9:46:00 AM
From: Kayaker	Read Replies (1) \| Respond to of 176387

35% I find that very hard to believe. Dunno Eddie, but here's a further quote... Myth #2: Covered Writing is a Good Strategy, because Most Options Expire Worthless. This misconception is a commonly held belief, but it is illogical, and there are some facts which support the idea that this belief is illogical. If most options expired worthless, then there would be 'excess returns' to be made from selling options. If this were true, then, in a competitive market place, opportunity-seeking capital would rush in to realize those 'excess returns'. To earn these supposed returns, many options would be sold, driving down option prices to the point where excess returns were no longer available. At such a point, it would no longer be true that 'most options expire worthless'. The fact is, most options do not expire worthless. From "Options for the Stock Investor" by James B. Bittman, 1996.

To: Eddie Kim who wrote (72895)	10/19/1998 10:36:00 AM
From: Kayaker	Read Replies (1) \| Respond to of 176387

Eddie, some further reading... The CBOE statistic that approximately 35% of options contracts expire worthless does not include "equity options in market maker accounts or index options, and they give no indication whether money was made or lost". The logic still holds though. If 95% of options expired worthless, selling options would be "easy money".

To: Eddie Kim who wrote (72895)	10/19/1998 10:44:00 AM
From: zurdo	Respond to of 176387

Eddie, I tend to agree with you...I also believe that the percentage of options expiring worthless is much higher than 35%, regardless of what the CBOE figures show...I would never buy options...I might sell them, however...Think about this...What if 4 or 5 houses like Morgan Stanley, Goldman Sachs, Merrill Lynch, Bear Stearns, etc. worked together to work the options buying crowd?? Four or five biggies like these guys, if they wanted to, could certainly control stocks within certain boundaries, couldn't they?? These are dominant players in the market, and control a lot of stock...

To: Eddie Kim who wrote (72895)	10/19/1998 1:26:00 PM
From: Chuzzlewit	Read Replies (1) \| Respond to of 176387

Eddie, you guys are talking at cross purposes because you haven't narrowed the scope of your discussions. I could buy deep in the money calls (say NOV Dell 20's). Do you believe those options will expire worthless? Similarly, maybe I could buy puts for DELL NOV 90's -- do you think those will expire worthless? I don't. But there is a reasonable chance of losing money on both of those purchases. The key here is to whether there is profit made in buying out of the money calls and in the money puts? When the question is phrased that way I think you are probably right with your 95% estimate. But if the question is phrased in terms of all options, I think the CBOE number sounds about right. But given the spreads between the bid and the asked price, I'll bet that the CBOE number means that 35% of all option transactions are profitable. That makes sense because in a perfect zero sum game you would expect that the number would be 50%. I'll bet that the difference is due to the bid/ask spread. TTFN, CTC PS -- everything I wrote above is pure conjecture. I have no data to support anything in this post.

To: Eddie Kim who wrote (72895)	10/19/1998 6:24:00 PM
From: nihil	Respond to of 176387

RE: % of options expiring valueless This is a complex problem and cannot be resolved without extensive research. I cannot find any serious studies of the profitability of floor or public trading. The studies of futures trading that have been published over the last 60 years show beyond question that public customers get cleaned, while the commission houses often end up bankrupt. Sort of a weird business, that emerged, I guess from commission maintenance and might even have changed since discounting. I think the problem in the present dispute is that those of us who think we are making money trading options --- at least can afford to keep losing it -- know that 90 per cent of our options purchases do not expire valueless. I think the profitable strategies are to sell out positions when they show a loss (thus the importance of trading close to the bid and ask) and letting positions run when they increase in value. This means that price of the underlying has to grow faster than time decay, volatility decay penalty, and uncaptured spread decrease price. A second problem is that the open interest changes dramatically over time. Buying deep-in-the-money bullish call spreads is one of the most profitable and most boring trades one can imagine. If you cover them with deep-out-of-the-money puts (in a uptrending stock like Dell) you can sometimes achieve a perfect hedge at a credit for the total trade. This something usually reserved to the floor trader and rarely will a customer be able to complete the trade at a sure profit. The point is spreaders on the floor look out for these things and they can swell both volume and percentage ending in the money. The volume in the deep in the money calls mushrooms as expiration approaches. The third problem is that open interest at expiration is always less than life-of-contract maximum daily open interest. For instance, in Dell October calls, 28,731 are listed as open interest with a strike below the underlying close (56 11/16). 87,995 contracts are listed at strikes over the closing underlying price, suggesting that about three fourths of the calls expired worthless. There is a problem, on an earlier print, September 29, you can see there are thousands of contracts open at the 70's and 80 which obviously expired worthless but were not active enough to be listed. The number of some strikes on October 18 is less than the number listed on the 9/29 print -- demonstrating that, unlike matter and energy, options can both be created and destroyed. I hope some untenured assistant professor of finance can get access to the data that can determine for whom and how much option trading is profitable.