Spydertrader's Jack Hershey Futures Trading Journal

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Quote from Pepe:

The number of futures contracts open is called "Open Interest". This tells you how many available contracts exist at one moment.

In the end there will be one person (at least) that will lose money. For one person to win there must be at least one person to lose.
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My contention with this often quoted view is it isn't "necessarily" true. That's why I said " but also consider the producer of the contract."

The farmer sells a futures contract of corn, Kellogs (or whoever) buys it to make corn flakes. No one loses. I might step in between and it could go either way, but saying there is always a loser on the other side is incorrect. Now you could argue that the farmer, hedging his crop, lost if the value fluctuated against his hedge, but he didn't really lose any money.

Regards - EZ
 
Selling something bellow its market value means taking a loss ...

Zero-Sum Game (Investopedia): A situation in which one participant's gains result only from another participant's equivalent losses. The net change in total wealth among participants is zero; the wealth is just shifted from one to another.

Options and future contracts are examples of zero-sum games (excluding costs). For every person who gains on a contract, there is a counter-party who loses. Gambling is also an example of a zero-sum game.

A stock market, however, is not a zero-sum game because wealth can be created in a stock market.


Quote from Ezzy:

My contention with this often quoted view is it isn't "necessarily" true. That's why I said " but also consider the producer of the contract."

The farmer sells a futures contract of corn, Kellogs (or whoever) buys it to make corn flakes. No one loses. I might step in between and it could go either way, but saying there is always a loser on the other side is incorrect. Now you could argue that the farmer, hedging his crop, lost if the value fluctuated against his hedge, but he didn't really lose any money.

Regards - EZ
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Quote from cnms2:


Options and future contracts are examples of zero-sum games (excluding costs). For every person who gains on a contract, there is a counter-party who loses.

cnms2,

Technically you are correct, however individuals and parties buy/sell options (or futures) for different reasons. Say I'm the CEO of a large company with a lot of shares and I want to protect my position from a sudden drop or even a deteriorating stock price. I would buy protective puts, full well knowing that the cost of the put premium is the cost of my insurance. We buy fire insurance for our homes, but do we consider ourselves losers if our houses don't burn down? I've always had a problem reconciling the zero-sum game concept with options.

PS, Ever wonder how Larry Ellison managed to maintain his net worth of his 1+ billion shares of Oracle during the tech bubble? protective puts!
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While certain discussions and sub-topics within a thread often 'round out' the information presented and / or augment the overall theme of transference, others topics, and / or sub-topics, run the risk of sending the original intent of the discussion way outside of the original bounds. While I welcome the many contributions made and the commentary posted, I also want to avoid rehashing discussions which already have their own home elsewhere on the Elitetrader.com web site. For these reasons, and to maintain the standard flow of information, I encourage anyone interested in continuing the 'Zero Sum Game' Debate to post their comments in this thread, rather than run the risk of losing focus on the knowledge transference - long the hallmark of this Journal. A quick click on the link above provides the reader with a glimpse of the debate - which raged on for 5 months.

Again, I in no way wish to stifle commentary: Quite the opposite. I simply do not wish to run the risk of losing focus at the stage of the process. In this light, everyone can hopefully see the wisdom of continuing the "Zero Sum Game" Debate in its appropriate location.

- Spydertrader
 
Interesting day. Made a lot of great trades, also got chopped up in a couple spots. I also tried covering my PnL today and that did not work out quite as planned. Ended up forgetting whether I was long or short, then cheering at a sudden 3 pt drop thinking I was short when I was really long. :eek: :eek: Cheers to fake money.
 
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