Does the average knowledgable investor make money in options?

I have academic knowledge of derivatives but uncertian whether avaerage investors make money in options investing?

I do not think the average investor makes much money in options. I think to the average person these are rather complex financial instruments and do not appeal to the average investors financial objectives. I think options are more frequently used amongst hedge funds and other large investment firms. I think if you have knowledge of options trading and feel comfortable with the risks associated then you could definitely make money. They allow you to control more stock with less money and can lead to large gains. There is also much risk involved because if they do not reach their strike price before expiration you entire investment is worthless. While the average investor is not making large sums trading options, there is plenty of money to be made using these instruments.

If large investment firms use options to hedge risk, why is it so unlikely for an investor to do so?

I have traded a ton of options over the years and have been around individuals that have done the same. These individuals had very extensive financial educations and can honestly say that about 85% of your average option traders go out feet first. I have watched millions thrown down the drain with people chasing the next run.

If you are disciplined, give it a shot, but if not give your money to a needing relative, you will feel better about it in the end.

Hoof

I think it depends on what you mean by "knowledgable."

If you mean knowledge of the greeks and how they interact, that is a necessary base but not sufficient.

You also need good money management skills, risk management skills, and knowledge about how to adjust positions as circumstances change.

If you include all those in your definition, then I think the answer is yes. If you do not, I think the answer is no.

You also need to consider this. A lot of smart people, as well as some not so smart people, make money by selling far out of the money unhedged options. They often keep doing this successfully for months or years before a "black swan" appears which creates massive losses, often well over a year's worth of profits. Even though they will make profits most years, I am not including such people as investors who make money.

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