When trading options many investors and professional traders such as market makers use calculators based on complicated mathematics to compute the right price. These calculators take live data into account such as the volatility, the interest rate and the price of the underlying security.

Professional traders not only use better mathematical models but also better input values for these price calculations than individual investors do. For example professional option traders are better in estimating the volatility of the underlying share. So even if a professional trader uses the same mathematical model as a non-professional investor does, the professional can still compute option prices more accurately.

A professional trader has another advantage over a non-professional. As the price of the underlying share fluctuates the computer program of the trader continuously adjusts the bid and/or ask price of the option. In this way the option price is always in line with the mathematical model of the professional trader. A non-professional however enters the orders by hand instead of via a computer program. When the price of the underlying security changes most investors can not change their order fast enough to stay in line with any mathematical model. In other words professional traders have a better integration between the real life price data of the underlying security and their option price model. And therefore they can spot opportunities left by slow private investors very fast, often before such an investor can adjust his active order.

Most private investors have a third handicap over professional traders. They often do not have the funds to continue an option position up to expiration of the option. So they always have to close the position by doing a second trade. In this second trade they have to pay the spread again to the traders. And this spread is higher than the spread for the underlying share because the trades in options are divided among series of contracts with different excercise prices. Usually only options with excercise prices close to the current share price have some liquidity. When people create a position then this position often has an excercise price that can be easily traded. However as time passes trading activity usually switches to other excercise prices and the spread on the just created position increases.

A clear consequence of the above is that it is not wise to trade options for an individual investor. Nevertheless many people find options still attractive. In particular they like the chance of the much higher returns (and losses). So there are still many individual investors making bets on the option market. And these bets generate huge profits for professional option traders.

There are situations where individual investors are better option traders than professionals but these occasions are quite rare. Such situations include abrupt changes in the overall stock market. In such circumstances prices given by humans will probably remain better than prices given by computer programs. Exchanges may then suspend trading though.

So if you still want to trade options it is better to invest in companies that do the option trading for you. Such hedge funds, or market makers can generate huge returns, while shaving individual investors. If you still want to trade options please consider giving up your current job and become a professional trader.