Buying calls for a living and arguing with derivman

I'm going to be a bit enigmatic here and suggest that the number 411 will soon be mentioned by Derivman . . . watch this space.

 

Thanks for the reply dashing blade and I apologise again for reporting you to the mods. I hope this is not another prank like Profitaker played on me with the post that led me to a non existent web page. Can you please clarify what you mean about the number 411 as I don't know what you are talking about.Has this anything to do with buying calls for a living or coffee Options?Cheers.
Derivman

 

Hi GTS and thanks again. Having traded the ES E-mini I know that every tick I lose someone else wins as I can see my PL reducing in realtime so I agree with you fully here and will say that trading the ES is a Zero Sum Game in that for every tick I lose the trader who hold sthe opposite position to my opening trade will gain. Again according to my study so far on Options it seems to be debatable as to whether it is a Zero Sum Game for Options trading.Cheers.
Derivman

 

It is not debatable, if you agree that futures is zero sum then you must agree that options are zero sum - it is the same principle; for every option seller there is an option buyer.

The only people who claim that neither are zero sum are those that include external products in the picture.

For instance if you own a stock and sell a call, you might lose money on the call (if the stock rises) but make money on the stock so from that one person's perspective they didn't lose money but they did lose on the call itself. If you only look at the options market it is zero sum - it has to be.

BTW, you said you were going to include a link to an educational site that explained why the two examples you listed were not both zero sum but you neglected to include that link.

 

Options as all other derivatives markets are a zero sum game, period. Every tick you lose someone else wins it. It doesn't matter what spread the other party holds. He/she may not win based on the total net position, but for that particular contract it's the same as futures.

Also, if your option expires worthless then you've lost 100% of the premium. If you then roll to the next expiration then that's a new trade and you, once again, risk the premium you paid.

 

This is simply not true.

If you buy an option for $100 and wait for it to expire out of the money you lose $100 (+ commissions). If you sell before expiration at $.05 you lose $95. Then buy a new one (same strike and different date) you again pay out $100 or whatever.

Rollovers cost - if nothing else they cost commissions.

Futures are not a zero sum game - they are a MINUS sum game. If you have commissions of $5 and you buy at $100 it costs you $105. They guy who sold it to you also happens to have $5 commissions and he gets $95 for his account. That $10 is now missing from the market and in the brokers pocket.

Make 'em pretty, Chris

 

Apologies GTS as I forget to include the link in relation to Zero Sum Game and Options as follows:

http://www.optionsnewsletter.com/expert2.asp

Paul raises some very good points here such as:

"Another common myth is: "For every options winner, there's a loser." (a.k.a. zero sum game)

This is not true because different options strategies offer "win-win" situations."

Cheers,
Derivman

 

And if you read the next sentence it says "Consider an investor that owns stock and purchases a protective put. "

Just as I thought, they are including things besides options (stock) to make the claim.

Options are zero-sum (excluding transaction costs as DblArrow pointed out).

 

Apologies to all but I am now starting to get confused a little. My reading of educational websites clearly shows that a lot of Option traders think that Options are not a Zero Sum Game, but here on Elite I also have some experienced traders saying that they are. I do not mean to be contradicting anyone, so again my apologies, but how am I supposed to know what is the correct answer. Maybe if I can understand the rollover better it will clear things up for I am niow thinking about some of the other posts that have been put up here. Again I would like to thank you all for your help and assistance. Cheers.
Derivman

 

Thanks GTS. Maybe if I post my two questions again we may now have a clearer picture of what the differences may be.

Question 1. One Option trader wins $1,000 and five Option traders lose $1,000 between them with $200 each.

Question 2. Five Option traders win $200 each and 5 Option traders lose $200 each.

Which of the 2 questions is a Zero Sum Game ?

None of these scenarios include stocks and is only about Options. I will say my answer is Question 2 as five tarders each lose $200 each. But where does that leave Question 1 as one trader has won $1000 and five traders have each lost $200. Are both Zero Sum or just one of the questions?Cheers.
Derivman