What Percentage of Options Expire Worthless?
One of the persistent and pernicious myths regarding options is that 80% of all options expire worthless. The number belies the fact that most options get closed well before expiration and can create some misleading belief that selling premium is the only sure way to make money trading options.
We’ve all seen the marketing emails and promotional literature that tout 85% win rates and push the concept that selling options allows you to “become the house” in the great option casino analogy.
While I firmly agree that there are distinct advantages to being a net seller of premium, such as the tailwind of time decay, and a statistically higher probability of realizing a profit, I think those benefits need to be kept in perspective.
While it’s true that most professional traders prefer positions with a positive theta, it’s important to keep in mind they are usually actively hedging to maintain a non-directional delta neutral portfolio; meaning they must have time decay on their side if they are to make money.
But unfortunately the professionals approach, along with the myth that 80% of options expire worthless, has led many retail traders, especially newcomers, into the false belief that buying options or using debit strategies is for suckers only. In both cases nothing could be further from the truth.
The reason the 80% myth persists is because…
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