Why do you play options?

[cohenmichaela]

Quote from kalikahuna:

a lot of people like to say this, or something along the lines of "If you still think options is a zero sum game then you don't know options"

While I believe that your direct seller or buyer could also be a winner...i am inclined to believe that somewhere down the diluted line of exchange, someone didnt make money off of his or her options trade...they potentially bought peace of mind in case their stock holdings moved in a certain direction (in which case, they still win, because they bought a product they like), but I believe that in the end, there are close to as many losers as there are winners if you follow the money trail long enough.

Options in and of themselves are a zero sum game (like all derivative contracts). For every specific contract there is a winner and a loser.

That being said I agree with archon that this information is next to meaningless. Options are financial vehicles that can be used to control risk. They are often just parts of more complex positions including other options, futures, securities, etc...

 

[Handsome]

I like options because they're available and it is nice to know in advance how much you can lose if you're wrong.

 

[HeywoodJablome]

Quote from optioncoach:

I dont play......

its called investing. Stocks, options, futures, bonds, etc... are not for playing. This is a serious business. If you want to play go to Vegas.

is it just me or is this guy budwick a world class a-hole. Hey, buddy, get over yourself. you know what the guy meant. do you feel compelled to be a jackass at All times. So many of the quotes I see from you are filled with acidity and vitriole. I think you need a good BJ. For god sakes....RELAX!!!!!

 

[forex-forex]

Quote from forex-forex:
With the advantage leaning towards the seller since options are "decaying assets".

Quote from AmbushHillbilly:
This has to be one of the most popular trading myths out there. This would imply that liquid options are inheritantly mispriced. There's been tons of debate here on ET on this topic already. Suffice it to say whether you buy or sell options doesn't make you successful - it's how well you trade.

No myth....Options lose value over time. The total value of all QQQQ March options WILL be worth less on March 16,2007

 

[MaxLD]

Quote from HeywoodJablome:

is it just me or is this guy budwick a world class a-hole. Hey, buddy, get over yourself. you know what the guy meant. do you feel compelled to be a jackass at All times. So many of the quotes I see from you are filled with acidity and vitriole. I think you need a good BJ. For god sakes....RELAX!!!!!

I think it's just you. Of course he knew what the guy meant. That very important piece of information was directed at the many who actually do "play" at stocks and options. These players will not be around for long. You MUST look at this as a business first and always. You must consider the downside risk of every trade or before long, he and I and professionals like us WILL have YOUR money and we'll laugh as we take it from you...well, I know I will

And it's spelled vitriol...

 

[AmbushHillbilly]

Quote from forex-forex:

With the advantage leaning towards the seller since options are "decaying assets".

Quote from AmbushHillbilly:

This has to be one of the most popular trading myths out there. This would imply that liquid options are inherently mispriced.

There's been tons of debate here on ET on this topic already. Suffice it to say whether you buy or sell options doesn't make you successful - it's how well you trade.

Quote from forex-forex:

No myth....Options lose value over time. The total value of all QQQQ March options WILL be worth less on March 16,2007

No argument there.

But let's address your earlier statement in full, without conveniently discarding the "with the advantage leaning towards the seller.." part. If the option seller truly had an inherent advantage (like a casino) then just sell options and let the odds do their thing. The more you sell the more you'll make in the long run. Do you really think it's that simple?

Whether you sell the option or buy the option your expectancy is zero (less commissions and slippage). Whether you make or lose money trading options, stocks, futures, or diapers depends on the same thing - how well can you trade?

It's a disservice to option newbies (as I once was - and am not far beyond) to keep spouting this stuff.

 

[Don87109]

Quote from archon:

Sorry, friend, but you couldn't be more wrong. One of the most complicating factors involved with trading options is the fact that options are not a zero sum game. If you buy a call, and I sell you that call, we can both be right and we can both make money depending on how we hedge, our other positions, etc.

Because of this fundamental reality, it makes tracking and interpreting options order flow practically impossible. If a customer buys 10,000 calls, you have no way of knowing what he thinks the market is going to do. Is he betting that the market is going up? Is he legging into a spread? is he just getting long volatility and has no interest in the direction of the underlying? Truth is, you just can't tell.

FYI, I Recently found an interesting thread on this subject HERE

Your logic floors me we you say that options are not a zero sum game.

I think what you mean is that the combination of options with stocks is not zero sum game and I tend to agree.

However, options alone are zero sum. If I win someone else loses.

The only conclusion I would draw from the "zero sum" theory is that the conventional wisdom that options are risky and many option players lose money is probably well founded.

Don

 

[MTE]

Quote from forex-forex:

No myth....Options lose value over time. The total value of all QQQQ March options WILL be worth less on March 16,2007

I really didn't feel like getting into this zero sum, option selling debate all over again as it has been discussed here on ET numerous times, but what the heck...Taken at face value, there is no edge in selling options vs. buying them. Successful strategies can be built around buying options, selling options or a combination of both, however, just selling options doesn't make you an automatic winner.

 

[El OchoCinco]

Zero-sum game is an academic theory that people in universities discuss. Professors who never trade like to repeat this mantra from their studies and students learn about it in an ivory tower setting.

In the real trading world, zero-sum game is meaningless for the individual trader just as efficient market theory, CAPM, utility, and any other academic theory taught by intelligent non-traders. If I make money, I could care less if someone had to lose it nor would it affect my decision which is based on technical or fundamental analysis or volatility or anything else.

So this zero-sum dicussions always goes nowhere for the very reason that it is meaningless

 

[AmbushHillbilly]

Quote from Don87109:

...However, options alone are zero sum. If I win someone else loses....

Don

I think you're debating slightly different viewpoints.

What you're saying is true. At some point an individual option has one side that made money, and the other side that lost money.

However, I think what archon is stating has a different twist. To give an example, you sell a put on a stock you'd like to own at that strike price. The stock goes up a lot. The put expires worthless. You miss out on the stock but you keep the premium. You're a winner.

I bought the put from you. So I'm a loser? What if that put was the long side of a vertical? I had sold a higher strike put at the same time. I made money off my spread and am also a winner in this case.

A single option is black and white. But options can be combined into myriad of positions, complicating the "zero sum" equation. That's why one mustn't take option volume, put/call ratios, etc. at face value.