Options : zero sum game

Quote from gkishot:

If you can make money by repeatedly playing the game it can't be a 0 sum game by definition.
You can't beat roulette by betting interchangebly on black or read because it's a 0 sum game. So how come you can guess in S&P the direction but you can't guess it in a 0 sum game like roulette by definition?
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Because a roulette wheel is more efficient than the markets. Every spin gives you a 50 percent chance of winning (assuming no green). Every trade does not have to have a 50% chance of winning. It is possible to increase your chance of having a winning trade and only trade high probability trades. Of course, I think most of the extremely successful traders don't concentrate so much on increasing their odds of having a winning trade as much as making sure their winners are bigger than their losers. That's the other difference between your roulette wheel and the options market. You're assumin that each trade will either make the same amount of money for you or lose the same amount of money for you. If you let your winners run and cut your losers short, you only have to have a winning trade 20 or 30 percent of the time.

It doesn't matter if one person makes or loses money in determining whether the game is zero-sum. It is the sum of all players that must equal zero.
 
Quote from gkishot:

I challenge you to compare it with something else beyond financial markets which is in your mind a 0 sum game. One more thing - how do you personally define a "0 sum game"?
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Alright. Poker. The world's best players make it to the final round year after year
 
Quote from DynamicReplic8r:


It doesn't matter if one person makes or loses money in determining whether the game is zero-sum. It is the sum of all players that must equal zero.
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Yes, in this sense it's a 0 sum game. But it's true also for all other games. I don't know of any game which is not a 0 sum by your definition - total sum of profit and loss of the players is 0. In this sense it's very trivial point. The more interesting question is whether it's 0 expectancy game or not. And my point is it's not depending on the underlying - meaning one guy can profit more often then another so the other guy has to dive from time to time into his pockets to bring more money to the table.
 
Uhh, yeah that's what it means

zero-sum game
A situation in which one person's gain must be matched by another person's loss. Without considering taxes and transaction costs, many types of investing, such as options and futures, are examples of zero-sum games.
http://dictionary.reference.com/search?q=zero-sum game

Glad you finally figured that out. The expected return is different for different players. Good luck compiling that data
 
Over long term the collective net is 0, but individually might not be net 0. The zero sum is for the collective picture. Some individuals will lose more and some gain more. Is this so hard to understand?

Individually therefore you can have positive expectancy and wiggle your way to be among the winners, why not? The zero sum only applies collectively, not individually.

Haha....btw, I think Im getting a bit tired. I should go to sleep now. Good night/ day where-ever you are.
 
Quote from DynamicReplic8r:

Uhh, yeah that's what it means

zero-sum game
A situation in which one person's gain must be matched by another person's loss. Without considering taxes and transaction costs, many types of investing, such as options and futures, are examples of zero-sum games.
http://dictionary.reference.com/search?q=zero-sum game

Glad you finally figured that out. The expected return is different for different players. Good luck compiling that data
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Yes, but it's very trivial point to be worth of discussion. Any game between 2 players is a 0 sum game.
 
I think you are confusing a negative/even expectation game like roulette or a coin flip, with TRADING in the option market.

The option market may be zero (before commish) sum and zero expectation if all the contracts at all the strikes are bought.

But, you see, options are a derivation of the underlying. Proper stock trading can be profitable. Proper option trading can be profitable.

I am not forced to trade every option, every second. I only trade the options I want, when I want. The net effect, for me, is profits.
 
Quote from gkishot:

My problem with this claim is that mathematically it's impossible to make money in 0 sum game
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Taken as a SUM (all buyers, all writers), yes, no money is made. There are INDIVIDUAL exceptions, of course.

I would add that options and futures are less than zero sum. They are zero sum minus spread minus commissions.
 
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