I'm sure you have seen the claims many times, "100%, 500%, even 1000% returns buying options". While these types of returns might be possible, the reality of achieving these levels of returns on an option purchase is extremely rare.

The fact of the matter is, approximately 80%* of all options purchased will expire worthless resulting in a loss for the investor who purchased the option.

Think about that statement for a moment. With those types of odds stacked against the buyer of an option, who is coming out ahead? The obvious answer to this question is, the investor selling or "writing" options will be the one to profit from an option that expires worthless.

This is why most professional option traders are selling options while less informed investors are buying options.

Lets review the benefits of selling options...

1. Option sellers have mathematical probability in their favor because most options are usually overpriced. Options are often overpriced compared to fair value formula pricing because of the nature of the participants in the market.

2. The seller of calls has a further advantage in that he will profit if the market is flat, moves lower, or even if it moves slightly against him (higher). Only if the market moves swiftly and sharply against him will the option seller lose.

3. By selling out-of-the-money options containing only time value, the options continually lose time value and, therefore, some of their premium. Because option selling potentially entails an unlimited risk of loss, the trader should not only have predetermined parameters for taking profits and accepting losses, but also confine trading to market conditions that are most favorable, such as over bought/over sold markets, high option premiums, etc.

Any investor interested in adding option selling strategies to their investment portfolio should carefully research the markets and how options are traded.

It is highly advisable for those investors not familiar with this concept work directly with a futures broker who understands the intricacies of trading futures options.

THERE IS A SUBSTANTIAL RISK OF LOSS INVOLVED IN FUTURES TRADING AND IS NOT SUITABLE FOR ALL INVESTORS.

* Source: Chicago Mercantile Exchange