A particular option myth keeps getting circulated. You can probably guess the myth I'm referencing: the myth that most options expire worthless.

I don't know who first circulated that myth or why, but both the CBOE and the OIC, the Options Industry Council, work hard to dispel that particular myth. As far back as March 6, 2006, a CBOE "Ask the Institute" expert wrote that, according to more than 30 years of data from The Options Clearing Corporation, only 30-40 percent of options expire worthless.

Option traders who want to explore historical statistics for options, including the percentage that expire worthless, can find them at various sources. One such source is the CBOE's yearly compilation of market statistics. Want to know the average number of options contracts per trade in 2008? That can be found on page 3 of the CBOE's compilation for that year. For all of 2008, the average number of contracts per trade was 20. For calls, it was 17 and puts, 20. OEX traders didn't fit the average. Further into the 161-page PDF compilation for 2008 comes the information that the average OEX contracts per trade was 51.1 for both puts and calls, with 46.0 being the average for calls and 55.9 for puts. Maybe you think that the reason that average put contracts exceeded average call contracts that year was the downturn in the market that particular year, but that pattern has held since 2004.

Another related myth perhaps not so easily dispelled by statistics is that in every option transaction, someone is going to come out a winner and someone else, a loser. That has to be true, logic insists. An option ends up at the money, in the money or out of the money. The person who had a bullish view of a particular security and sold a naked put that ends up out of the money wins, right? The person who bought that same put loses, right?

Logic would be wrong. This supposition doesn't factor in the flexibility of options and their many uses. For example, imagine that Trader A is the one with the bullish view of the markets, and that Trader A also has the trading permissions to sell naked puts. Imagine that in March, this prescient Trader A rightly assumed that the markets were going to climb and also took note that high volatilities had nicely plumped up option prices. Trader A decided that IBM was ready to climb and sold APR 75 puts. Come APR expiration, Trader A had made a nice profit and was smiling, all that profit taken in still in the trading account.

Was someone else crying, the person who took the opposite side of that trade? Maybe not. Maybe Trader B also had a bullish view of the markets but was loathe to sell naked puts. This trader preferred the long-stock route, surmising that IBM's story meant that it had lots of room to run to the upside. However, Trader B was an about-to-retire experienced trader who had weathered many a financial storm, a wise trader who was willing to give up some upside potential in order to minimize risk. This trader elected to protect the long stock investment by collaring that stock, buying an April 75 put and also selling first a MAR and then, subsequently, an APR covered call to finance the cost of the put. The trader probably had to roll the calls as IBM climbed. Still, imaginary Trader B was glad to have participated in the initial phase of IBM's rally, and elected, after APR's expiration, to continue with the collaring strategy and stay in the IBM stock. This trader's long APR 75 put expired worthless, but was the trader crying? Hardly.

Maybe Trader C really wasn't sure where IBM was going. That trader felt fairly certain that 80 looked like good support, however, and so elected to sell an 80 put and buy a 75 put, forming a credit spread that was half of a larger iron condor. IBM zoomed higher, and pretty soon Trader C was able to buy back that APR 80/75 bull put spread for $0.10, doing away with any downside risk. Of course, when he bought back the spread, what he was doing was buying-to-close the short 80 put and selling-to-close the long 75 put, and he was most certainly selling the APR 75 put for less than he'd paid for it. But was he crying? Hardly. He was celebrating the quick exit from and payoff in that credit spread that he'd bought back for far less than he'd paid to enter the trade.

If you'd like to know more about options myths, the OIC offers a free webcast on the topic. Accessing the webcast requires a free registration at this site. The webcast could be interesting, but, more importantly, helpful. Those who presuppose that most options expire worthless may be making some risky decisions based on that erroneous supposition, for example.