Keith Fitz-Gerald

Bank Big Bucks on 'Worthless' Options

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It also means that the millions of hapless, fortune-hunting traders (who thought they were going to strike it rich) will lose out.

They're going to lose because they never stopped to think about something that professionals like me think about all the time -- namely, that options are a zero-sum game. They're not like stock in that they don't just exist in some sort of options storage yard until they're needed.

900 MILLION REASONS TO SELL OPTIONS

Folks, in order for an option to be created, there has to be both a buyer AND a seller. If there are 290 million options expiring worthless this year, that means there are a lot of buyers and sellers doing business together. And I love that because it means that there are 290 million reasons for you to sell options.

Numerous studies -- including several conducted by the options exchanges themselves -- show that option sellers not only take home the majority of the bacon, but they also enjoy a statistical advantage every time they enter the markets. That's something inexperienced options buyers either don't know or simply choose to ignore.

You can see that in the trading pits in Chicago just like you can in Las Vegas. And what's wrong with that, you ask? Nothing if you're into entertainment, but everything if you're into winning.

COLLECT OTHERS' MONEY UPFRONT

For instance, 90% of all gamblers think about how much money they're willing to lose before they quit, yet they play games where they know the odds are stacked heavily against them.

Contrast that with how my professional trader buddies and I play, both in Vegas and in the trading pits. We focus only on those games where we know we can achieve a statistical edge, and we think about how much we want to win per game, per session, per day and per trip.

Of course, we also think about controlling our losses, but my point is that we are using what we know to stack the decks in our favor and we bet accordingly, but only when we have a high probability of winning.

That's obviously a big difference between the two schools of thought.