Options : zero sum game

Discussion in 'Options' started by IV_Trader, Mar 2, 2006.

  1. for retail trader ? Maybe (and maybe not).
    Read so many related posts on this subject here and basically agree on this concept/statement but... some opportunities are still exists.
    I like to share a particular trade I made yesterday .

    Fact : stocks PETM and PETC are closely correlated (same industry , market cap..)
    Fact : both stocks moved big (in relationship to their own IV/sta div) in the last three-four qtrs.
    Fact : PETM reported yesterday , AC and PETC is to report on 3/16.

    Action : I entered APR 20 straddle on PETC (vols=34%).
    Trade rational : possible super adjustment of delta neutral position with PETM after report move (if its happens) and future spike in PETC vols.

    Today status : PETM moved 10% and PETC (the one I hold) moved 6% on the sympathy. Now everyone suddenly remembers that PETC to report soon too and vols already spiked to 38 from 34.

    And here comes the best part of this trade :

    ALL YESTERDAY APRIL OPTION VOLUME WAS MY(not bragging , just facts)

    Zero sum ? Yes , but...
  2. Options trading has to be zero sum, no doubt whatsoever.
  3. of course it is
  4. Panurgo


    You forgot delta trading. You can always replicate option p/l using underlyng.
  5. This is always a funny argument because if I make 30% in a year, I really do not care who lost it to get it to me. It is not as if I am trading against one person and we both negate out everything. I make winning trades and losing trades and come out net ahead as many positive traders do.

    So does it really affect your trading to know it is zero sum or not? LOL

    If there were only 3 people in the world, Me, seller and MMs and I bought a long call that went up in value and then sold it, I would make money on the trade and so would the MM. As soon as the MM took the call he would hedge and 2 out of 3 of us would be happy and with money in our pockets.

    Isn't that all that matters, that you make money?

  6. True, but how does that alter the zero sum fact ?
  7. gkishot


    How about stocks? Are they zero sum game? I don't think so. Zero sum game suggests that financial markets is some sort of ponzi sceme and people can't make money if no other people bring money to the game. I am very sceptical that this is true because markets have their own intrinsic value .
  8. gkishot

    Stocks are different. Though there is an argument for zero sum, it's much more complicated.

    Options / futures are a contract between 2 parties (facilitated by MM's), and what one gains the other must lose.



    No, it doesn't matter.
  9. MTE


    Companies can create or destroy value so stocks are not a zero sum game. Options and futures, on the other hand, as it has been pointed out, are contracts between two parties where one party gains at the expense of the other so there's no value creation/destruction merely a re-distribution.
  10. my post was not about the zero sum game (which is a fact) , it was about choices :

    1. One can keep on bitching about zero sum , negative expectancy ,etc , etc
    2. Work hard and smart ( strategy , a lot of data handling , always looking for opportunities)

    My choice is #2

    besides , many on ET agreed that only 5-10% of traders are successful , those stats are very variable to winners in the zero sum game.
    #10     Mar 2, 2006