Stats › Options, shorts and positioning › Options as lotteries
Far out of the money options lose money because they are lottery tickets, not because they are far out of the money
| Options and maturity | Low skew | High skew | Spread | t |
|---|---|---|---|---|
| Calls, 7 days | +1.87% | -35.25% | 37.11% | 7.56 |
| Calls, 18 days | +0.22% | -8.76% | 8.98% | 4.07 |
| Calls, 48 days | +0.83% | -2.58% | 3.40% | 5.05 |
| Puts, 7 days | -5.38% | -59.98% | 54.60% | 14.13 |
| Puts, 18 days | -0.90% | -13.73% | 12.83% | 3.92 |
| Puts, 48 days | +0.02% | -3.16% | 3.18% | 1.94 |
Weekly returns to quintile portfolios of individual equity options sorted on ex ante total skewness, portfolio formation dates 1 February 1996 to 9 October 2009. All figures are gross of transaction costs. Weekly spreads of this size are not attainable net of bid-ask spreads on seven day equity options.
Sorting equity options on ex ante skewness produces weekly long short spreads of 37% in seven day calls and 55% in seven day puts. Controlling for skewness, the moneyness spread is small and mostly insignificant, which inverts the usual explanation.
Members only
The rest of this page is for members
Below this point there are 5 sections and 3 named sources, roughly 750 words of it. Every figure carries the source it came from and the date the data is from.
You can keep browsing every statistic in the library for free. The intro and the summary are always open.