Part 13: Life of Contract Total Trading Value.

SISCO'sOption World: Specific statistics and details for each individual contract month.

Option expiration is a defining moment for option traders. When the contract expires, all accounts are updated and settled. It is the defining moment for deciding winners and losers. So who wins and loses and how much money was made and lost is at best a guess and there is no precise method to determine the number of winners and losers. However, presented below are charts that attempt to quantify the winners and losers.

There are different characteristics that can be ascertained from the data available and the first characteristic that is illustrated in the life of contract total trading value. The life of contract total trading value (LOCTTV) is an estimate of the amount of money option traders traders spend on options throughout the life of a contract. This shows us where the money is being spent and how much is being spent. The figures presented as the LOCTTV are only estimates because of two factors. 1. The exchange doesn't post adjustments to trading volume and 2. the data used to calculate the LOCTTV is based on end-of-day data. All trading volume for the day is priced as if it were purchased with the last price of the day, which isn't the case. If every trade were recorded and made available, then a precise LOCTTV could be computed, but this is currently not possible due to the exchanges reporting standards and because of the use of end-of-day data.

Each day every contracts daily total trading value is computed and all call values and put values are combined to compute the total call and put contract month's total value. This is added to the previous total trading value so that a life of contract value is maintained. Totalling these values enables us to track how much money is spent on each contract and in summary each contract month. Below are the contract month summaries of the LOCTTVs.

In addition a composite total for four indices was created. The monthly contract totals for the SPX, OEX, NDX, and DJX were combined to aggregate the finanical indices trading values. This aggregate illustrates the best estimate of how much money was spent on calls and puts for the broad market. By following the contract months out into the future you can see which group of options, calls or puts, has interested traders more.

Option Expiration Contract Values

The next characteristic that is presented is the actual monthly total contract values at expiration. Here the final value of each option is used with the last reported open interest figures to compute the value that will be transferred to the buyers accounts. What is known is that for every buyer there is a seller, or writer, and the money estimated spent represents the total money expended by buyers to purchase the options. This also sets the amount of money that the sellers, or writers, could receive. We don't know the number of buyers that closed their positions prior to option expiration but we do know the number of options that remain open on expiration. We also know which options retained value at expiration and so we know the amount of money spent and the amount of money won. This enables us to compute the a ratio of the total money spent to the total money made.

In addition we also know how many options expired worthless. The open interest remaining, as reported by the exchange for the day before expiration, is our best guess as to the number of traders who lost but the value of the loss in unkown. Unfortunately, there is another group of traders whose values can't be determined. The value of option sellers, or option writers, values can't be determined because their initial values aren't known. But we do know the number of sellers that won. They represent the same number of options that expired worthless to the buyers.