zero sum game?????????????
- Thread starter madmunny
- Start date
Some people on this thread are confusing two entirely different terms: Market Efficiency and Zero Sum Game.
The futures markets are by definition a Zero Sum Game and this has NOTHING to do with the efficiency of the markets. If this were not true, we would have our own perpetual money making machine â money would grow on trees!!!
This does not mean that the markets are efficient! People can and do consistently make money in the futures markets, but this money does not appear out of nowhere. It is transferred from one person to another after each trade.
The rest is just semantics.
The futures markets are by definition a Zero Sum Game and this has NOTHING to do with the efficiency of the markets. If this were not true, we would have our own perpetual money making machine â money would grow on trees!!!
This does not mean that the markets are efficient! People can and do consistently make money in the futures markets, but this money does not appear out of nowhere. It is transferred from one person to another after each trade.
The rest is just semantics.
It is not entirely a zero sum game due to dividends!
If you bought say GE for $30 and received $2 in total dividends. Later, I buy GE from you for $28, you only lose the $2 of dividend earnings, not your initial equity.
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Also, your gain may not necessarily be someone's loss.
For example, if I buy 1,000 shares of GE for $30 and hedge my position by buying 10 put contracts with strike 30 for $2 each. I plan to sell GE on the day the put options expire, and I know that I will get $.50 per share in dividend before the puts expire. On expiration day, let's say GE goes up to $33. Whoever sold the options to me pocket $2 per contract, and I pocket $1 + $.5 in profit per share of GE. In this situation, we can't say it's a zero sum game.
But let's say the price of GE on expiration day is $30. Whoever sold me the puts pockets $2 per contract. But does it mean I actually lose $2 per contract to that person? Of course not! I make $.5 from the dividend, so my net loss is only -$1.5. So you see, it's not entirely a zero sum game.
If you bought say GE for $30 and received $2 in total dividends. Later, I buy GE from you for $28, you only lose the $2 of dividend earnings, not your initial equity.
_________________________________________
Also, your gain may not necessarily be someone's loss.
For example, if I buy 1,000 shares of GE for $30 and hedge my position by buying 10 put contracts with strike 30 for $2 each. I plan to sell GE on the day the put options expire, and I know that I will get $.50 per share in dividend before the puts expire. On expiration day, let's say GE goes up to $33. Whoever sold the options to me pocket $2 per contract, and I pocket $1 + $.5 in profit per share of GE. In this situation, we can't say it's a zero sum game.
But let's say the price of GE on expiration day is $30. Whoever sold me the puts pockets $2 per contract. But does it mean I actually lose $2 per contract to that person? Of course not! I make $.5 from the dividend, so my net loss is only -$1.5. So you see, it's not entirely a zero sum game.
This is not entirely the same situation I was referring to in my post, though your point is valid.
When considering the economy as a whole and including profits generated by businesses that later translate into dividends we are talking about an entirely different animal.
I am not smart enough to understand macroeconomics or how money and wealth are 'created'.
Judging by the number of world renowned economists that disagree on policy - I don't think anyone really has a total understanding into this topic.
Again with dividends, continuing to argue by giving a single case and ignoring the big picture as a whole. How many companies are able to pay dividends compare to how many that aren't? How many companies will be able to survive long enough to cover the other thousand money-losing companies?
Quote from madmunny:
could one of you academics who beleive the stock market is a zero sum game please explain this idea to me? I personaly think if you actually believe the market is a zero sum game you dont belong in it and should probably try to get a job as a university prof teaching theory and not actuality.
the way i see it...the only way it can be a zero-sum game is if every company in the market went bankrupt and became worthless and im pretty sure this wont happen.
maybe im wrong.....if i am please show me the error of my ways cause i am really gettin pissed off at all these posts i read where people state that the market is a zer0-sum game and if you can prove me wrong i can stop being pissed off at my percieved stupidity of you.
You are correct. The stock market is not a zero sum game, and as you point out, those that believe it is are simply clueless.
http://www.investopedia.com/terms/z/zero-sumgame.asp
http://www.fool.com/news/foth/2000/foth000912.htm
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From the second webside quoted above:
"the hard and fast truth is that only two factors determine stock prices over time -- the level of corporate earnings and the multiple that investors are willing to pay for those earnings."
This is obviously not true. In bubbletime, stockprices easily multiplied without the company ever showing a profit or positive earnings. That is called losings not earnings...
Didn't AMZN go up from $3 over $100 in its first 2 years? And it was only a year or so ago when they finally started to turn a profit...
"the hard and fast truth is that only two factors determine stock prices over time -- the level of corporate earnings and the multiple that investors are willing to pay for those earnings."
This is obviously not true. In bubbletime, stockprices easily multiplied without the company ever showing a profit or positive earnings. That is called losings not earnings...
Didn't AMZN go up from $3 over $100 in its first 2 years? And it was only a year or so ago when they finally started to turn a profit...
The statement is true. Earnings can indeed be either a postive or negative number, and regardless of what that earnings number is, what people are willing to pay for the stock in relation to that number is what determines price.
"Gambling, on the contrary, is a zero-sum game. It merely takes money from a loser and gives it to a winner. No value is ever created."
http://www.investopedia.com/articles/02/061902.asp
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oh my god.
the blithering idiots continue...
"It is not entirely a zero sum game due to dividends!
"If you bought say GE for $30 and received $2 in total dividends. Later, I buy GE from you for $28, you only lose the $2 of dividend earnings, not your initial equity. ""
STOCKS pay dividends. STOCKS are not a zero sum game. EVEN if stocks did NOT pay dividends, they would still not be zero sum. only a moron would claim that stocks are zero sum. similarly, only a moron would claim that futures are not zero sum.
FUTURES do not pay dividends. dividends are paid by a company. when you own a stock, you LITERALLY own a fraction OF that company. that company, in the case of stocks that pay a dividend, gives income payments to co-owners of a company. that is what stockholders are. Literally. If you don't believe this, then you don't understand stocks.
Futures are NOT stocks. Companies issue stock. Companies do not "issue" futures. Futures are a contract. That is all. For EVERY single long futures contract, there is a short futures contract. futures contracts can be generated out of thin air. because all they are is an agreement . options are similar. i can write a "call option" for MSFT right now. and sell it. it's called "writing a call". somebody else can buy that option. options are also a zero sum game. MSFT has no control over MSFT options. Similarly, the companies that comprise the Dow Jones Index don't issue YM futures contracts. the very idea is meaningless.
the sum total of all futures contracts (there is necessarily the same # of short and long contracts) is thus ZERO. hence, the term 'zero sum'
"Also, your gain may not necessarily be someone's loss.
For example, if I buy 1,000 shares of GE for $30 and hedge my position by buying 10 put contracts with strike 30 for $2 each. I plan to sell GE on the day the put options expire, and I know that I will get $.50 per share in dividend before the puts expire. On expiration day, let's say GE goes up to $33. Whoever sold the options to me pocket $2 per contract, and I pocket $1 + $.5 in profit per share of GE. In this situation, we can't say it's a zero sum game.
But let's say the price of GE on expiration day is $30. Whoever sold me the puts pockets $2 per contract. But does it mean I actually lose $2 per contract to that person? Of course not! I make $.5 from the dividend, so my net loss is only -$1.5. So you see, it's not entirely a zero sum game."
that's great, but GE stock is not part of a zero sum market.
stock market GROWS wealth over time. That is not that hard to understand.
you guys are truly amazing.
PLEASE trade YM. i need some more traders to provide liquidity to me. thanks
the blithering idiots continue...
"It is not entirely a zero sum game due to dividends!
"If you bought say GE for $30 and received $2 in total dividends. Later, I buy GE from you for $28, you only lose the $2 of dividend earnings, not your initial equity. ""
STOCKS pay dividends. STOCKS are not a zero sum game. EVEN if stocks did NOT pay dividends, they would still not be zero sum. only a moron would claim that stocks are zero sum. similarly, only a moron would claim that futures are not zero sum.
FUTURES do not pay dividends. dividends are paid by a company. when you own a stock, you LITERALLY own a fraction OF that company. that company, in the case of stocks that pay a dividend, gives income payments to co-owners of a company. that is what stockholders are. Literally. If you don't believe this, then you don't understand stocks.
Futures are NOT stocks. Companies issue stock. Companies do not "issue" futures. Futures are a contract. That is all. For EVERY single long futures contract, there is a short futures contract. futures contracts can be generated out of thin air. because all they are is an agreement . options are similar. i can write a "call option" for MSFT right now. and sell it. it's called "writing a call". somebody else can buy that option. options are also a zero sum game. MSFT has no control over MSFT options. Similarly, the companies that comprise the Dow Jones Index don't issue YM futures contracts. the very idea is meaningless.
the sum total of all futures contracts (there is necessarily the same # of short and long contracts) is thus ZERO. hence, the term 'zero sum'
"Also, your gain may not necessarily be someone's loss.
For example, if I buy 1,000 shares of GE for $30 and hedge my position by buying 10 put contracts with strike 30 for $2 each. I plan to sell GE on the day the put options expire, and I know that I will get $.50 per share in dividend before the puts expire. On expiration day, let's say GE goes up to $33. Whoever sold the options to me pocket $2 per contract, and I pocket $1 + $.5 in profit per share of GE. In this situation, we can't say it's a zero sum game.
But let's say the price of GE on expiration day is $30. Whoever sold me the puts pockets $2 per contract. But does it mean I actually lose $2 per contract to that person? Of course not! I make $.5 from the dividend, so my net loss is only -$1.5. So you see, it's not entirely a zero sum game."
that's great, but GE stock is not part of a zero sum market.
stock market GROWS wealth over time. That is not that hard to understand.
you guys are truly amazing.
PLEASE trade YM. i need some more traders to provide liquidity to me. thanks