Across the internet, the rhetoric of options is the same: 90 percent of options expire worthless. Others will claim that the figure is less than 90 percent, but possibly 70 to 80 percent. Where do any of these figures come from? Let’s look at the research language to see if there is a discrepancy between this statement and the statements of some of the research studies that have been done regarding the options.
The Chicago Board Options Exchange (CBOE) has been maintaining data on options since 1973. CBOE investigators discovered a largely overlooked fact: that not all options are held to expiration. This is extremely important when trying to determine where figures such as 90 percent are actually coming from. The CBOE broke down the results of the options into a simple formula: 10/60/30. Ten percent of all options are exercised (converted to the underlying asset); approximately 60 percent of the options are closed (cleared) before expiration; and the remaining 30 percent is held until maturity.
It is very likely that all the remaining 30 percent of the options will actually expire worthless; The CBOE formula does not mean that 90 percent of all options expire worthless. In a study conducted by the Chicago Mercantile Exchange (CME), from 1997 to 1999, researchers decided to come to a definitive conclusion about the exact percentage of options that expire worthless. In their research, they concluded that 76.5 percent of the options that were held to maturity expired worthless.
This is significant. If only 30 percent of the options are held to expiration, and of those that are held to expiration, 76.5 percent expire worthless, then the statement that “90 percent of the options expire without value. value “is not only false, but a blatant lie, a lie. It has been perpetuated over and over again until it has become a marketing fact. The idea of ”options held until expiration” and “options that expire” have merged into a monolithic idea that is simply comparing apples to oranges.
Just because only 30 percent of the options expire does not mean that the remaining 70 percent of the options are successful. We know that 10 percent of all options become the underlying asset; This is a sign that 10 percent of all options are guaranteed to be successful. We also know that about 60 percent of options are cleared before they expire. Some of them are profitable and some are not, but none of them have expired. So where does the 90 percent figure come from?
It is probably due to the fact that only 10 percent of the options become your underlying asset. That means 90 percent of the options do not convert to underlying stocks or futures contracts. So undoubtedly the assumption is that if 90 percent of the options don’t convert, then they should expire worthless. This is a false assumption that is simply not supported by the numbers. Even in the small percentage of options that expire, 30 percent, some of them expire with a cash value (13.5 percent, according to the CME).
So while we know that the percentage of options that expire worthless is not 90 percent, there is reason to believe that most options lose money. With 50-60 percent of contracts cleared before expiration and most options expiring worthless, the odds are in favor of 50-60 percent of options losing operations. While 50-60 percent is less than the advertised 90 percent figure, selling options remains a promising opportunity.
