According to my definition of zero-sum, both are zero-sum. What is your definition of zero-sum? http://en.wikipedia.org/wiki/Zero-sum http://www.smartoptionsreport.com/glossary/zerosumgame.html http://www.investopedia.com/terms/z/zero-sumgame.asp
Just a guess: these other 'educational websites' are all selling a product, right? And it probably has to do with being an options broker, or an options data broker. Right? It's like getting history lessons from the Soviet Ministry of Education. Here at ET we are the people . Just believe what you want, but know that some of those talking to you here have true, hads-on experience and years of trying and thinking behind them. I would know who to believe. Maybe you hesitate to believe because you don't like the truth? Ursa..
Given you said you have experience with e-mini futures trading, let me rephrase question 1 in those terms: If you buy 5 futures contracts and 5 other people take the other side with one contract each, does that mean it is no longer a zero sum game?
Thanks GTS for the reply. It is said that there are more losers than winners in Option trading. My understanding is that there has to be same amount of winners as losers for it to be a Zero Sum Game. Also it is said that the great majority lose in Options trading and only a small few win. Could it be that most people have it wrong in that Options are a Zero Sum Game and the small few that believe it is not a Zero Sum Game are right and are the few that make the most money trading Options. It really is not that easy when you have so many conflicting opinions but I think the correct answer will allow me to approach my new Options trading with a greater chance of success. Cheers. Derivman
False - Show me who said that, certainly not any of the links I quoted. Read them again. Look, I can lead a horse to water but I can't make you drink. If you don't understand why options are zero-sum then you shouldn't trade them because you clearly don't understand how they work on even the most fundamental basis. I don't even understand why you are relying on web sites or ET posters like myself for this answer. Use your brain. Construct an fictious example and do the math. Again, if you can't do that then you have no business messing with options.
I apologise if I have offended you GTS but I am only trying to get to the correct answer. I stated earlier that I like to finish off one thing before I move on to another and this is why I may see a bit persistent. Again, you have my apologies and I think I will wait for some other experienced traders to comment also to see where the bias is. After that I can then make a decision and move on. Thanks for your kind help. Cheers. Derivman
Unfortunately, your understanding of what it means to be a zero sum game is semantically incorrect. For some reason you are assuming that everyone has to win or lose the same $ amount each. This holds only if there are equal numbers of winners and losers. However, fewer winners and more losers just equates to the winners each winning more $ per person than the losers lose $ per person. This is basic math. If you are not clear on this concept then the math involved in understanding options gets a lot more complex than that. I hope this doesn't turn into another majority vs. minority debacle.
Thanks for the reply TraderMojo. Is this exactly the same as the Options question as a Futures contract does not have any premium attached to it and thus the passage of time will have no additional effect on the price apart from the normal price changes resulting from the supply and demand over time. Surely we must look at each market individually as derivatives can vary according to their purpose. Cheers. Derivman
Thanks for the reply GTS. Can you please clear up what you are referring to in that there is more losers than winners or the Zero Sum Game. Cheers. Derivman
So you accept that in the futures example, you can have different numbers of winners and losers but still be a zero sum game? Yes or no? With options you have buyers and sellers of premium. You can have differing numbers of buyers and sellers just as with the futures example. There is no difference.