Keith Fitz-Gerald

Bank Big Bucks on 'Worthless' Options

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What if I told you that 90% of the people trading options were too stupid to be doing so? You'd probably feel pretty insulted if you trade options, but let me tell you, I know what I'm talking about and you're not stupid, either.

Here's what I'm driving at. With 90% of all options held to expiration expiring worthless, there's truth to what I'm saying. Let me explain.

New or inexperienced options traders typically prefer to buy cheap, out-of-the-money options because of the promise of low risk and unlimited returns.

What they fail to realize is that those options are cheap for a reason -- namely that they haven't got a snowball's chance of ever turning a profit. The market would have to move so far beyond its normal boundaries, that it's virtually impossible to make any money.

'SELLING OUT' IS A GOOD THING!

As a professional options trader, I look at option buyers differently. I love those guys because they're creating something I call the "stupidity premium" and I can make money all day long from it. You can, too.

First, let me tell you how big the profit opportunities really are. In 2008, there are probably going to be around 1 billion or so options traded on the Chicago Board Options Exchange. (Nearly 700 million contracts traded on the CBOE in the first seven months of the year.)

Of those, roughly 90% will be held to expiration and expire worthless.

Trading volume on the CBOE accounts for approximately a third of all trading on the nation's seven options exchanges, so imagine that number being amplified even further!

But for our example purposes, this means that 900 million options bought are going to go "bad" and be worth a big fat zero when their time's up.