Nobody should Lose Money this Week

Quote from Stealth Trader:

Once again, the stock market is not a zero sum game. Futures and options, however, are indeed zero sum.


http://www.investopedia.com/terms/z/zero-sumgame.asp

http://www.fool.com/news/foth/2000/foth000912.htm


st
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If you think about it, you'll see that Investopedia is wrong. Stocks go through long periods of "nearly everybody winning" and "nearly everybody losing"... but in the end (usually many years or decades for stocks), it all balances out to zero sum.

The consequence of "stock = zero sum", however, is insignificant. Few of us would own them long enough for it to matter.
 
Quote from gnome:

If you think about it, you'll see that Investopedia is wrong. Stocks go through long periods of "nearly everybody winning" and "nearly everybody losing"... but in the end (usually many years or decades for stocks), it all balances out to zero sum.

The consequence of "stock = zero sum", however, is insignificant. Few of us would own them long enough for it to matter.
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Gnome, gnome......................I've always respected you as one of the smart ones here!! :D :D

Please tell me you are just pulling my leg! Or perhaps I am simply misunderstanding your intent. For those that only hold stocks intraday, your stand may have an ounce of truth. But the stock market as a whole is not zero sum by any means. No one has to sell their share for it to increase or decrease in value. Not to mention dividends.

A person buying HD @ IPO and holding for years, sees a profit. That person then sells it to another, and they too hold it for years. They too see a profit, sans taxes and inflation, of course. None of this is true for futures.

http://www.stockjargon.com/dictionary/z/zerosum.html

I did have a link to a university study that went into great detail regarding this issue. I'm not sure if I still have it, I'll look later tonight for it.

Regards,

st
 
Quote from Stealth Trader:


A person buying HD @ IPO and holding for years, sees a profit. That person then sells it to another, and they too hold it for years. They too see a profit, sans taxes and inflation, of course. None of this is true for futures.

http://www.stockjargon.com/dictionary/z/zerosum.html

I did have a link to a university study that went into great detail regarding this issue. I'm not sure if I still have it, I'll look later tonight for it.

Regards,

st
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Who is selling it at IPO? Whomever owned it before. They aren't profiting from the shares going up like you are. They are losing profit.

You can take any trade and look at it at any time in the future, and see how much better or worse off you are because you did that trade. The other person has the exact opposite view. That makes it zero sum. This includes everything, interest dividends, etc.
 
Gnome, Stealth Trader is right. Stocks are not zero sum, and Futures are zero sum. And I think there are people who post here who hold for longer term... stock trad3r or something like that is some kind of longer term stock trading guy.
 
Quote from Stealth Trader:

Gnome, gnome......................I've always respected you as one of the smart ones here!! :D :D

Please tell me you are just pulling my leg! Or perhaps I am simply misunderstanding your intent. For those that only hold stocks intraday, your stand may have an ounce of truth. But the stock market as a whole is not zero sum by any means. No one has to sell their share for it to increase or decrease in value. Not to mention dividends.

A person buying HD @ IPO and holding for years, sees a profit. That person then sells it to another, and they too hold it for years. They too see a profit, sans taxes and inflation, of course. None of this is true for futures.

http://www.stockjargon.com/dictionary/z/zerosum.html

I did have a link to a university study that went into great detail regarding this issue. I'm not sure if I still have it, I'll look later tonight for it.

Regards,

st
More...


actually a person that sells a stock forgoes future gains in exchange for a bet that 'cash' is a better place.

stock market valuations interact with that of other markets (ie currency, bond, etc.), so on the surface it appears a 'wealth creator' and exempt from the 'zero sum game', but I could argue that in *real* terms stock market value changes merely reflect a shift of value from other markets. so the macro (stock + currency + commodity) picture remains zero sum.

ie...

currency devalues/inflates -> oil + gold worth more in currency terms (same in real terms, however) -> oil + gold stocks appreciate. The oil and gold wealth comes from somewhere, and that is at expense of the currency you are holding, and/or the stocks are denominated in.

the same could be argued for the tech bubble. tech stocks appreciated at rapid rates due to mass speculation and investor excitement over a fundamental change. venture capital and investor cash (currency) was infused to appreciate the equity markets. other assets suffered (look at commodities at this time!) at the expense of this boom.

anyway, the zero sum argument is all useless (for trading at least) pontification. if stock markets are supposedly not a zero sum game, then regardless derivates of the same will perform just as the stock market. so buy futures at will. even though someone is selling it, i'm sure he'll be happy to forgo his gains or speculate against you.

maybe whitster will differ with me and point out my lack of experience studying game theory. but this appears to me as common sense.
 
I think WD40 should have titled his post..No Daytrader Should Lose Money This Week. For daytraders, this is without a doubt the best of trading times---rivaling those of the markets heyday when I started in 2000. With the Vix so high, this market is a pure ATM machine, minting money for anyone who has an eye for the ridiculous inefficiencies being created by the panic.

OTOH. investors and swing traders won't fare as well in this environment.
 
If I may weigh in. I think that the stock market can be, but is not necessarily zero sum, whereas the futures market is necessarily zero sum. The reason that the stock market is not necessarily zero sum is that, for one position to exist, there does not need to be an opposite position, such that only one of the parties can benefit from a move in a particular direction. It can be, in those pockets where there are shorts in the market, but otherwise it is theoretically not necessarily so in an essentially unidirectional market for the period under consideration. However, in the futures market, for any existing position, be it long or short, there must be an equivalent opposite position in one configuration or another. That is what makes it zero sum. Less the vig, of course, as gnome had mentioned. As for options, I have no idea about those animals, but I suspect they fall in line with futures as zero sum.
 
Quote from Chartiste:

With the Vix so high, this market is a pure ATM machine, minting money for anyone who has an eye for the ridiculous inefficiencies being created by the panic.
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Why should this be? Isn't the risk just as great as the reward in this environment?
 
If you are HOLDING a position, certainly the risk is greater. But if you are trading in and out of positions, these wild moves sparked by the Vix are pure money.
 
Quote from Chartiste:

If you are HOLDING a position, certainly the risk is greater. But if you are trading in and out of positions, these wild moves sparked by the Vix are pure money.
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what if you are wrong side of the position?
 
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