The whole concept of trading being "a zero sum game" is completely false and dangerous. Is buying insurance on a house a "zero sum game"? Is a cattle auction just a form of gambling for farmers. Is it a strange co-relation that countries with the highest futures and stock volumes also have the highest GDP? By assuming a risk for someone you remove and obstacle to doing business. When I sell a future on ZF (five year US government bond) a bank is able to hedge it's interest rate risk so it can lend out more money. And that is not the only economic benefit from trading. There are thousands of subtle benefits. In fact I think trading is one of the most noble occupations as we move into a post industrial economy.
I kind of get the jist of Risktaker's argument because I have seen his other posts about the current state of the market. I agree the market is oversaturated and its sort of skewed the price structure over the past few years. But I was saying the same things at different times over the past 7 years. In fact, this looks almost identical to July, 1998. Same sort of squeeze up into an options expiration with a neverending bid beneath the market. As soon as that expiration was over, the selling poured into the market. Another situation similar to now was March, 2000. Another expiration squeeze. Except this was the mother of all squeeze's, more than likely wont see it again in this lifetime. And once again the following Monday there was an FOMC meeting, the market started selling off hard from that point forward. In the back of my mind, I knew one of these stealth rallies was gonna come sooner or later to put a nail in this market. There always has to be a final rocket shot squeeze to get everyone all lathered up and to dump it on them. Thing that blows me away is that the European indicies are outpacing the US markets. Liquidity gone amuck.
I agree with most of what you state. However, when you buy insurance, the insurance co. won't control when you die and has no idea if/when your house will burn. However, the options on many of these exchanges cause the underlying stock prices to be artificially manipulated in whatever ways suits the big money. And they used to only screw with the big caps. Now, even some of the mid/small caps are being played with. I don't call that buying insurance. And even in the ''real'' insurance business who makes the money?
I dont care who makes the money ..... These markets do serve a purpose with respect to the insurance analogy and they are used for this purpose all the time: There really is no mystery. Do the existence of derivative markets affect the price of the underlying instrument ? - sure they do but they also serve to limit risk exposure. I dont see a problem.