Charlie Sheen and The Myth That Won’t Go Away

Truth or fiction?  On this day in 2008 Charlie Sheen married socialite Brooke Mueller.  This is true.

Truth of fiction?  90% of options expire with no value.  This is FICTION.

Using all caps bugs me as much as people that use the letter K for OK when chatting, that’s just lazy.  However, this piece of fiction just won’t go away.  There are certain pieces of information regarding the option industry that keep me employed as an Instructor at the Options Institute and this is definitely near the top of the list.

For clarification sake I checked with the OIC regarding exactly what the outcome is for option contracts that are opened up when a new buyer and seller come together at one of the many organized option exchanges.  In 2012 71.5% of options that were opened were closed out before expiration.  That leaves 28.5% that were not closed out before expiration.  7.2% of those were exercised and were definitely in the money.  This number also includes options that may have been exercised early.   The other 21.3% expired out of the money or a holder chose not to exercise the option.  I understand that at first glance seeing that only 7.2% of options are exercised leads to the belief that over 90% of options expire with no value.  But with 30 seconds of research shows that this does not mean that 92.8% of options expired with no value.

OIC Stats

Beyond that, Marty Kearney, a wise sage at the Options Institute also pointed out that if an individual sells a call option against their stock, creating a covered call they may actually want their option to expire out of the money.  So even among the 21.3% there are ‘positive’ outcomes based on the motivation behind the trade.

So the truth is that only about 21% of options expire out of the money and even among those it was not a negative outcome.  As far as Charlie Sheen’s marriage, the outcome for that was a little different.