This paper examines the impact of option trading on individual investor performance. The results show that most investors incur substantial losses on their option investments, which are much larger than the losses from equity trading. We attribute the detrimental impact of option trading on investor performance to poor market timing that results from overreaction to past stock market returns. High trading costs further contribute to the poor returns on option investments. Gambling and entertainment appear to be the most important motivations for trading options while hedging motives only play a minor role. We also provide strong evidence of performance persistence among option traders.

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ERIM Top-Core Articles
Journal of Banking & Finance
Erasmus Research Institute of Management

Bauer, R., Cosemans, M., & Eichholtz, P. (2009). Option trading and individual investor performance. Journal of Banking & Finance, 33(4), 731–746. doi:10.1016/j.jbankfin.2008.11.005