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As far as I can tell...the 90% comes from two areas.
1. The fact that 90% of options go unexercised...this is factually correct. The
OCC calculates the data monthly and in effect about 90% of options do go
unexercised. People then often ask "isn't unexercised" the same as expire
worthless. The % exercised relates to two issues. Profitability, of course..and
transaction costs. In a frictionless world the % would be a multiple of the
current 10%, BUT the option world is FAR from frictionless.
2. A lot of people, IMHO, like to make the case that it is nearly IMPOSSIBLE, to
make money from the longside...generally to justify some idea or product. IN FACT
ONCE YOU UNDERSTAND OPTIONS AND OPTION PRICING you come to understand that what
the pricing model does(for a given volatility)is to create a price at which the
buyer and the seller would both have identical risk/reward properties.
CalaxCorp@xxxxxxx wrote:
> In a message dated 98-06-10 16:31:14 EDT, droex@xxxxxxxxxxxx writes:
>
> <<
> People love to throw out 90% numbers when it comes to derivatives. They
> are almost always not based on fact. The common assumption is that 90%
> of options expire worthless. That is also a fiction. 30% of options
> expire worthless and that number in and of itself say NOTHING about
> overall profitability.
> >>
>
> Does anyone out there know where this scary 90% (of options expiring
> worthless) figure came from, who made a survey or statistical analysis to come
> to this conclusion, or who first wrote about the figure in a published article
> (and thereafter people started quoting him)?
>
> Just curious,
> WilliamW
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