Thursday, March 29, 2012

80% Percent of Options Expire Worthless?

It comes in several flavours, sometimes stated as 80%, 90%, or whatever. It is the maxim that most options expire worthless. It is repeated so often out there in the marketplace, it is taken as a given and used as a justification to be a nett seller of options and/or promote option selling @education". It is repeated, as a mantra, by some of the most well known folks in optionland. There is only one problem, it's bullshit.

I like being a nett seller of options too, but the reason has nothing to do with the statistic of how many options expire worthless. As I sated in my previous post, it rather depends what strike one sells that dictates the probability of an option expiring out of the money. I like selling options for mostly psychological reasons; what I do has evolved mostly because of my personality direction picking prowess (poor) and how I like to trade.

Let's look at the actual figures according to the Chicago Board Options Exchange:

About 10% of options are exercised during each cycle. That means the other 90% must expire worthless, right?

Wrong! In fact over 60% of all options are traded out in the marketplace before expiry. These could be in, out or at the money.

That leaves approximately 30% of options expire that expire worthless in each monthly cycle.

Can anything be gleaned from this regarding being a buyer or seller? Absolutely not, there are so many different  strikes, strategies and combinations which are not given in this statistic that further analysis is impossible.


  1. Very informative post and the content is quite easy to get knowledge and Epic Research also provide relevant content about the share market.

  2. So, of the options that aren't closed, 75% expire worthless then.

  3. So, of the options that aren't closed, 75% expire worthless then.

    1. I think the article is implying that somewhere between 20% and 90% of options expire worthless, - but there is not enough data to say where in this wide band the actual figure lays.
      To take an extreme (although I think, untrue) interpretation, one could propose that most positions are closed out, so therefore perhaps it is only the worthless ones which not closed because it is cheaper not to. then only 20% - 30% expire worthless.
      - i.e. The 50%+ of closed out transactions obscures too much of the data.