Ghost Education (Part 5)

The Option Alpha article ends by saying once we determine why high volume options are being purchased, we can decide how to profit on them. This is ludicrous since we can never know the “why.” The absurdity doesn’t end there.

Maybe these options aren’t even being bought. Christine asked this question in the Comments section and Kirk (the author, I presume) responded:

> well you usually won&#039t [sic] know who&#039s [sic] doing what…

He admits the obvious! We can’t know. This makes me laugh. Volume and open interest just are. They don’t indicate what is bought and what is sold. He goes on:

> But you can usually assume that extremely high volume
> with out-of-the-money options is the work of buyers who
> are hedging.

Assume anything you want but ultimately, nobody can know since we can’t interview market participants. Period.

We’re pretty much left with nothing, here, since the article is telling us to decide how to profit based on why they are being traded, which we can never know.

This is the epitome of what I call “ghost education:” the title of this blog mini-series. Ghost education is an article, or other presentation, that purports to deliver something real but, in fact, delivers absolutely nothing.

The Option Alpha article concludes:

> We have found that the most consistent strategy
> is to SELL the options that are far out of the
> money and keep the premium as they expire
> worthless.

In the example of the Jan 11 500 put, how much could I make by selling the option? Look back at the option chain: the bid is zero. I would make nothing. There is nothing actionable here. Ghost education once again…

In my next post I will address another point.

Did you notice a contradiction between the two articles?