How Popular are Various Option Strategies?

Lakonishok J., I. Lee, N. D. Pearson, and A. M. Poteshman (2007) Option market activity, The Review of Financial Studies 20(3): 813-857.

I've been searching for more papers on put trading but there only seem to be a few out there with more or less the same message. I came across the fascinating paper cited above in this process. The authors analyse CBOE data for the period from 1990 through the end of 2001 that is disaggregated according to type of investor: proprietary traders, full-service broker clients, discount broker clients, and other public clients (which includes foreigners, unassigned trades etc.). When you trade in the options market you are trading against a market maker - your trade does not have to be matched by another public client. So the public has unbalanced amounts of written and bought calls and options, which are balanced by market-maker positions. The most popular strategy in this period was writing calls, followed by buying calls, writing puts, and buying puts. Most trades were bets on direction of the market rather than hedging transactions. Also writing and buying of straddles and strangles, which are trades on volatility, was a very small part of total activity. So, surprisingly, contrary to popular wisdom, market makers are net buyers of options! Discount customers increased their purchases of calls over the period (one not surprising result) but also increased their put writing.

Given the lack of popularity of buying puts, the empirical high price of puts is all the more surprising.