246% return with Zeal 2006 options! Very impressive. Maybe I need to subscribe to the Zeal Speculator after all. But you need to buy all their options recommendations, because some lose money, so you wouldn’t want to be the buyer of that one that expired worthless.
My brother used to be a lawyer on Wall Street, and he told me that most options expire worthless, i.e. they are a money maker for the options writer, as Chris said. The same was explained by leung_lewis in the casino example.
I wrote yesterday that Zeal may have a higher rate of success due to their good research. From the links you provided, it is obviously the case. Which leads me to ask: why aren’t we all subscribing to Zeal and getting 200% returns? Their research is excellent. My only other question would be how risky their recommendations are (alpha or beta?), and if they will do just as well in the upcoming bear market.
Regarding the 90% figure cited by Chris, I find it believable. I did a google search on options, and found lots of links on the high loss rate. Here is an article:
“Options, by definition, are a wasting asset. Many first-time option investors learn this fact the hard way by watching their option contracts expire worthless. It is frustrating to have a call option expire on a Friday afternoon only to see the market rally through your strike price the following Monday or Tuesday. The vast majority of options expire worthless; most estimates are somewhere north of 85%. ”
Here’s another article about a CME options study done for a book:
“While there are certainly many viable options-buying strategies available to traders, options expiration data I obtained from the CME covering a three-year period suggests that buyers are fighting against the odds. Based on data obtained from the CME, I analyzed five major CME option markets – the S&P 500, eurodollars, Japanese yen, live cattle and Nasdaq 100 – and discovered that three out of every four options expired worthless. In fact, of put options alone, 82.6% expired worthless for these five markets.
This study analyzes data compiled by the Chicago Mercantile Exchange (CME) for a special options report prepared for this my book, Options on Futures: New Trading Strategies (Wiley & Sons), co-authored by Jonathan Lubow, vice-president of Trader’s Edge, Inc., a futures and options brokerage based in Madison, NJ. ”
