Options trading adds an exciting layer of dynamism to your trading strategy. To succeed as an option trader you need to make sure you know the basic options trading statistics and facts.
Options trading reserves the right to sell or buy a financial instrument at a specified price or time. Options contracts help financial market traders do business and interact in the market in ways that were impossible in the past.
With this strategy, options contracts can be as short as a few hours. When you hold the right to call options, you’re not always obligated to assign them, but if you choose to assign them, the process is called “exercising your options.” On the other hand, while selling options, you’re almost always obligated to fulfill your part of an agreement, and the risks are higher as a seller. We’ll get back to this further down in the article.
Options are derivatives. They are not tangible assets but financial contracts between buyers and sellers. Let’s look at some statistics and facts about options trading:
How likely are you to succeed as an option trader?
A few of the frequently asked questions by intending and new day traders are: “How many day traders make money? What percentage make money? What is the success rate?”
Options trading is no different than other types of trading. With trading, you can earn so much money and feel like you’re on top of the world, but unfortunately, you’re more likely to lose money as a day trader.
A study conducted by the London Business School found that from 2019 to 2021, retail market traders lost upwards of USD 2 billion in options premium, much of it concentrated in short-term options with a short time to expiration.
Peer-reviewed studies about the actual figure are hard to come about, and the data available from brokers is questionable at best (most quote around 25% success rate). Still, a 2004 study from the University of California, Berkeley in the USA and National Chengchi University, Taiwan, found that less than 20% of Taiwanese day traders make profits trading. You can read more in our article called Day Trading Statistics 2023: The Shocking Truth
What percentage of options expire worthless?
Options have a finite life and expire at specific dates, something called expiry date.
As options approach expiration dates, holders must decide whether to exercise, sell, or leave it to expire. In-the-money options can be exercised or sold, while out-the-money- options expire worthless. For example, if you own a call option to buy Microsoft at 300 and Microsoft is trading at 290, it doesn’t make sense to exercise the option and pay 300 when you can buy the in the market for 290. This is an out-of-the-money option and will expire worthless.
Articles on the internet tend to argue 80% of options expire worthless. But this is incorrect: the correct answer is that 80% end up unassigned. That is a huge difference.
Reports show that around 30% of all options expire worthless, but the data is once again unstandardized.
Recent data from the Chicago Board Options Exchange (CBOE) shows that only 10% of all options are exercised, 60% are closed before expiration, and only 30% expire worthless.
This means that the odds are not in favor of option sellers, as many people believe. In fact, a good portion of the options that expire worthless are used for hedging purposes rather than directional speculation.
In other words, most options traders buy options to trade them, not to exercise them or hold them all the way to expiration.
So, if you’re thinking about writing options, be aware that the odds of success are not as high as you may think! Not to mention, you might face unlimited risk.
Options generally decrease in value as they expire, so it’s always a good idea to quickly make concrete decisions on whether to exercise your options. As a holder, you usually have until the close of business, a day before expiration, to exercise your options.
Why do most options traders fail?
Failure is a touchy subject in the trading world, but it’s the reality for an unprecedented amount of people. There are many reasons why options traders fail, but one of the most important reasons for failure is lack of knowledge.
Too many options traders make decisions without the correct data to back them and lack fundamental trading knowledge. If more options traders take the time to learn, unlearn, and relearn trading, there’s the probability that success rates can increase across the board.
Which options contract is the most traded?
One random day in September tells us the following stock options were the most traded:
The table above varies, of course. Typically, the most traded stock options contracts are the most traded stocks.
With options, each contract is worth one lot, and each lot includes 100 shares. So, purchasing one lot of a stock worth $2 will cost you $200.
Where do options traders live?
Options traders live, work, and operate globally, and as financial instruments trading becomes more global, it is more accessible to more people than ever.
Options traders predominantly live in places we might typically expect them: North America, Western Europe, and East Asia. But the exciting thing is, based on recent happenings, we can expect options traders’ trade locations to become more diverse. Sub-Saharan Africa, South Asia, and Oceania markets promise to drive growth and global adoption of this trading class.
Professional options traders are most likely clustered around the typical financial centers: New York, London, Frankfurt, Tokyo, Chicago, Singapore, etc.
Are options traders men or women?
Trading is a man’s game. We have not managed to find any info on the number of women or men traders, but we assume it’s the same as in day trading:
On a gender-based analysis, the field appears to be male-dominated, with men constituting 90.5% of day traders in the USA. In contrast, women account for 9.5%.
Is the options market bigger than the stock market?
A few years ago, the answer to this question would have been a resounding NO, but this isn’t the case anymore. The US single-stock and index options market has grown rapidly over the past few years, setting and breaking previous records yearly.
Goldman Sach reported that the US options market surpassed the stock market in trade volume for the first time in 2020. Historically, the stock market has been more significant than the options market. Still, options trading has become so popular over the last few years, and trading volume superiority alternates between both markets.
What is the largest options market in the world?
Currently, this award goes to the Chicago Board Options Exchange (CBOE). It was created in 1973, and as the name implies, it’s located in Chicago, USA. The CBOE focuses on options contracts for individual interest rates, other indexes, and equities.
Trading on this exchange is done through its hybrid system, allowing customers to trade through the traditional open outcry method or electronically. The Open Outcry method allows trading through visual and oral cues.
The CBOE offers its volatility index to show market expectations on 30-day volatility. The ticker symbol for CBOE’s volatility index is VIX, calculated from both put and call options.
Is the options market bigger than the futures market?
Futures and options contracts are financial derivatives that help investors speculate and manage risks on the market. Futures contracts require the buyer to purchase an asset and the seller to sell an asset at an agreed-upon date unless the holder closes their position early.
Between 2013 and 2022, the futures market grew from 12.13 billion contracts to 29.32 billion. In the same period, the options market grew from 9.42 billion to 54.53 billion contracts. Thus, the options market is bigger than the futures market!
What assets do options traders trade?
Options traders typically deal in a handful of underlying securities, including ETFs, Indexes, and equities. Different traders choose the securities they trade based on capital, risks, taxes, and more.
As an options trader, you may trade single stocks, debt securities such as index-linked notes and bonds, and foreign currencies. There’s something for everybody in the options market; you are not limited by the financial instruments you can trade. So, to answer the question, options traders trade a wide variety of assets.
How long does a day trader lose before they quit?
How long can you go without making a profit? Many seasoned traders have had to answer this question during times of sustained losses.
Personality matters a bit; some traders are disciplined with their strategies, follow their “stop losses,” and “take profits” religiously. Some others treat trading like gambling, putting in more money as they lose because they believe the next trade will be “the one.”
According to reports, 40% of day traders quit within a month, while 87% of traders do not make it to the 3-year mark. Trading has high turnovers; many people enter the space, but only some have the knowledge and discipline to stand the test of time.
We can expect the same number for options traders, perhaps even worse because options trading is a zero-sum game.
How many options traders “blow up” and lose it all?
There are two sides to the trading industry: you stand a chance to make more money than you can imagine in a short time and the possibility of losing it all and racking up debilitating debt in an equally short time.
According to a report from the United States Securities and Exchanges Commission on Forex Trading dated 2nd of August 2011, 70% of traders consistently lose money quarterly, while 100% of a retail customer’s investment is lost in less than 12 months. The report is from 2011, but it’s as relevant today as the day it was released.
How much do options traders make per year?
According to Ziprecruiter, annual salaries for options traders in the US range from $70,500 to $139,500. Professional options traders earn a decent living with average options trading salaries of $102,302.
It’s worth mentioning that the numbers above represent annual salaries for employed options traders and not freelance or self-employed traders. Right now, Chicago, Illinois, appears to be at the center of recruitment for options traders, with more activity than most other markets.
The average annual earnings for self-employed and freelance options traders are currently unclear, but most retail traders lose money as indicated above.
What are the most popular options trading strategies?
As an options trader, you have the luxury of choosing from a list of successful trading strategies, and two of the most popular include;
Bull put spread
Traders typically employ this strategy when they’re optimistic about an asset’s direction, which is done by buying puts over calls.
Call put spread
With this strategy, buyers purchase one call option, At-The-Money (ATM), and then sell the call option, Out-Of-The-Money. However, with this strategy, it is essential to remember that both calls must have the same expiration date and underlying asset.
What is the riskiest options strategy?
In the world of options trading, there are a plethora of risky strategies, but one has proven to be consistently riskier than most others, and it’s the “naked call.”
Naked calls work by selling the right to purchase a security at a predetermined price, which is done to earn a profit when you collect the premium. The issue with this strategy is you’re selling the rights to an asset you do not own.
Naked calls are risky and comparable to shorting a stock. Most veteran investors protect part of the risk by buying another call or financial instrument. It’s risky because a stock theoretically can rise unlimited. For example, Gamestop went from 5 dollars to over 75. If you sold calls at 5, then you would have a pretty nasty loss at 75!
What is the win ratio for options strategies?
In trading, win ratio refers to the number of successful individual trades; the trades’ value isn’t considered. At Quantified Strategies, we’ve previously shared an extensive list of trading strategies to assess and their win rates.
What is the average return for options strategies?
It’s practically impossible to assess the average return for options strategies. However, before you take a position, you can have theoretical assessment of the profits depending on certain factors.
What is the most traded stock option?
Regarding total daily trade volumes, the three most traded stock options are Tesla Inc, Apple Inc, and Nvidia Corporation.
Do traders buy or write options mostly?
Traders do both; this is because they can make profits as option writers or buyers. An option contract has both a buyer and a seller, thus why it’s a zero-sum game.
The options market allows for profits during volatile times, notwithstanding the direction. Whether a trader writes or buys depends on personal preference and strategy implementation.
What is the daily trading volume of options?
Daily trading volume is the total number of options contracts traded daily. Abnormal trade volume in individual option contracts occurs when the volume eclipses 200%.
In February 2023, options trading broke a daily volume record when over 68 million contracts changed hands.
What is the daily trading volume for each asset?
An asset’s average daily trading volume (ADTV) is the average number of trades made within a 24-hour period. ADTV can be calculated by taking the total number of trades made over a time period and dividing it by the number of trading days in your dataset.
Retail or professional traders: Who drives the market?
By sheer number of traders, retail traders dominate institutional trades in financial markets. But in terms of volume, each institutional trader handles larger asset volumes than retail traders.
In recent years, retail trading has driven growth in the financial markets as adoption grows.
What race are options traders? Options traders demographics
Two-thirds of options traders in the United States are ethnically white, with 12% being Asian, 11.3% being Hispanic, 5.4% black, and 4.5% other (source: zippia).
The rate of white options traders has steadily declined since 2010 as more people from different backgrounds enter the options trading space.
Is options trading right for you?
Options trading has grown considerably over the past few years, and the space has much potential for more growth. A service like Quantified Strategies can help you succeed in your options trading journey. You’ll need a lot of support and knowledge; it’ll be in your best interest to learn from veterans in the space.
That said, we believe you are more likely to make money trading stocks and ETFs, and not options.