zero sum game?????????????
- Thread starter madmunny
- Start date
Ok, convexity is a little difficult, how about elasticity?
Whitster cannot say futures and options are zero sum if you are stretching contracts with contango and degredation.
How about under insurance and over claiming, and under-reporting and over-profiting.
Refco happened, and so did hurricaine Katrina.
May be you should try buying a futures contract on the Nymex and taking it to delivery.
Let's see if you get obliterated or not. If not you may feel extremely stretched.
If you decide on gasoline, you may want to try saving all the fumes when filling up your tank next time.
I still live to see another day and write this blog.
I survived, without having to save the fumes.
The futures or options matrix cannot be rigid as suggested by Whitster. Something else has to sit on top of it or beside it, to account for all the deviations.
rigid?
lol
it is so simple.
FOR EACH AND EVERY LONG CONTRACT, THERE IS A CORRESPONDING SHORT POSITION
THE ***NET*** IS NEUTRAL. HENCE, IT IS ZERO SUM
it has nothing to do with rigidity. futures are nothing more than agreements. that is all.
stocks are not.
stocks are partial ownership of someTHING
thus, the wealth in that system can grow. it doesn't HAVE to grow. in fact it can retrace for some time. a la 1929.
futures are necessarily a two sided agreement referencing a tangible item (or basket of items). since one side of the agreement necessarily gets smaller, as the other side gets bigger, on a net basis, there is no change
unless you want to bend the laws of physics and mathematics to suit yer own agenda, it is that simple.
as option players ( i am one to an extent, but not a full blown volatility hound) know, you can construct some very complex strategies involving combinations of options, or options/stock or even (lord forbid) options, stocks, and futures.
but the net is necessarily zero. there is no way, structurally it could be any different
lol
it is so simple.
FOR EACH AND EVERY LONG CONTRACT, THERE IS A CORRESPONDING SHORT POSITION
THE ***NET*** IS NEUTRAL. HENCE, IT IS ZERO SUM
it has nothing to do with rigidity. futures are nothing more than agreements. that is all.
stocks are not.
stocks are partial ownership of someTHING
thus, the wealth in that system can grow. it doesn't HAVE to grow. in fact it can retrace for some time. a la 1929.
futures are necessarily a two sided agreement referencing a tangible item (or basket of items). since one side of the agreement necessarily gets smaller, as the other side gets bigger, on a net basis, there is no change
unless you want to bend the laws of physics and mathematics to suit yer own agenda, it is that simple.
as option players ( i am one to an extent, but not a full blown volatility hound) know, you can construct some very complex strategies involving combinations of options, or options/stock or even (lord forbid) options, stocks, and futures.
but the net is necessarily zero. there is no way, structurally it could be any different
What do you understand by liquidity? Why do you need more liquidity? Why you need the traders to provide the liquidity for you?
Buy a Nymex contract and take it to delivery.
That is all I ask you to do. Just do it. What do you fear. That you may not be here to tell the tale, that you may be wrong, that you may not survive, that you may have to save up on the gasoline fumes next time you fill up.
You have stated your view of what you think.
Let's see if you can share your experience after having gone through to delivery. Let's see if your view changes in anyway.
Whitster, you're such a narrow-minded moron! Think carefully before you actually verbally trash another!
Do you have a basic understanding of hedging? If you did, you would know that options, futures, and stocks are related. Gambling in options and futures = zero sum game (I agree). But options and futures do not have to be entirely zero sum game. When a person buy stocks and hedge with options and futures, it is not a zero sum game. Wealth can still be created in this process because of the ownership of stocks in that hedged portfolio (and we have already established that trading in stocks is not a zero sum game).
You misinterpreted the what academics said about options and futures. Trading (GAMBLING) in options and futures is a zero sum game. Betweem the gamblers, it is a zero sum game. But options and futures themselves are not a zero sum game. Learn to differentiate! Learn to think before you talk! Learn to be humble! And learn not to be a jerk!!!
Do you have a basic understanding of hedging? If you did, you would know that options, futures, and stocks are related. Gambling in options and futures = zero sum game (I agree). But options and futures do not have to be entirely zero sum game. When a person buy stocks and hedge with options and futures, it is not a zero sum game. Wealth can still be created in this process because of the ownership of stocks in that hedged portfolio (and we have already established that trading in stocks is not a zero sum game).
You misinterpreted the what academics said about options and futures. Trading (GAMBLING) in options and futures is a zero sum game. Betweem the gamblers, it is a zero sum game. But options and futures themselves are not a zero sum game. Learn to differentiate! Learn to think before you talk! Learn to be humble! And learn not to be a jerk!!!
The problem between those who are in disagreement about rather futures and options are a zero sum game is a definition problem. Depending upon what you define as the 'game' and who the players are, it changes rather it is zero sum or not. If you define the game as strictly the buying and selling of only the futures and options by all market participates, then yes it is a zero sum game. However if you define the game to also include arbitrage transactions with the underlining contracts or you do not consider hedgers to be part of them game, then no, it is not a zero sums game. Some people might not consider hedgers to be a part of the 'game' since they are using futures to insure a price for their business and not looking to profit from the futures directly. In their definition only traders looking to profit directly from futures are part of the game.
For anyone who things the stock market is or might be a zero sums game, there is a better website for you....www.stupidtrader.com
For anyone who things the stock market is or might be a zero sums game, there is a better website for you....www.stupidtrader.com
Since this thread is getting boring and repetative, I figured I would introduce a new concept, the negative sum game, when most (not all, but the majority) of the participants lose. (Playing poker in a casino is a negative sum game, because of the rake, which is the house's comission.)
Example:
I am a doctor in cancer research. I come up with a new way that MIGHT treat cancer. I found a company based on my promising research and we go public. At the IPO we take in 100 million from the original investors. The stock start to trade, we start the research, use the money to hire doctors, laboratories, etc.
After 2 years, we realize that we used up pretty much all of the money and my original idea wouldn't work for one reason or other. I hold a pressconference announcing the news. Stock start to fall, in the next few weeks we burn through all the 100 mill and eventually go bankrupt. The company gets unlisted, stock trades at 2 cents a piece, if at all. The company never earned a dime, never paid any dividens.
In this case from the stocktraders' view it was a negative sum game, because basicly 100 million got siphoned out of the investors pockets. Overall it was zero sum, because that money was used up by my company, it went to reserach and salaries, nevertheless stocktraders traded the stock down until it got to zero, except shorters, anybody who bought it after the announcement had to sell it at a lower price. (Just for the argument sake, if the stockprice was less than $5 originally, you couldn't even short it.)
This just shows, that :
1. The stockmarket itself is not a closed system, because beside buyers and sellers there is a 3rd entity, called the company. That fact greatly influences the whole game set up.
2. It is possible that there are more money lost than made, thus a stock can be a negative sum game.
Conclusion: (in my opinion)
The stockmarket is not a zero sum game (because it is not a closed system, which is a requrement for zero sum games), but that doesn't mean that it is always a positive sum game. Stocks can be negative sum games too.
On the investopedia website, when they write about this, they say:"... it is not a zero sum game because wealth CAN BE created outside of the stocktraders."
Please note that they use CAN and not IS. Thus it is a conditional, it doesn't mean that wealth is ALWAYS created by the underlying companies, just as my example showed. Or just recall pets.com,webvan.com and other very promising tech start ups from the bubbletimes. They were all negative sum games eventually as far as stocktraders were concerned, although some traders made money by trading them.
Now for extra fun, I mention again, that stocks CAN BE zero sum games. When there is no dividends paid AND the company's value doesn't change in either way (if that actually happens is a different question, let's say my company in its first 2 years in the example ), then it is a zero sum game....
Example:
I am a doctor in cancer research. I come up with a new way that MIGHT treat cancer. I found a company based on my promising research and we go public. At the IPO we take in 100 million from the original investors. The stock start to trade, we start the research, use the money to hire doctors, laboratories, etc.
After 2 years, we realize that we used up pretty much all of the money and my original idea wouldn't work for one reason or other. I hold a pressconference announcing the news. Stock start to fall, in the next few weeks we burn through all the 100 mill and eventually go bankrupt. The company gets unlisted, stock trades at 2 cents a piece, if at all. The company never earned a dime, never paid any dividens.
In this case from the stocktraders' view it was a negative sum game, because basicly 100 million got siphoned out of the investors pockets. Overall it was zero sum, because that money was used up by my company, it went to reserach and salaries, nevertheless stocktraders traded the stock down until it got to zero, except shorters, anybody who bought it after the announcement had to sell it at a lower price. (Just for the argument sake, if the stockprice was less than $5 originally, you couldn't even short it.)
This just shows, that :
1. The stockmarket itself is not a closed system, because beside buyers and sellers there is a 3rd entity, called the company. That fact greatly influences the whole game set up.
2. It is possible that there are more money lost than made, thus a stock can be a negative sum game.
Conclusion: (in my opinion)
The stockmarket is not a zero sum game (because it is not a closed system, which is a requrement for zero sum games), but that doesn't mean that it is always a positive sum game. Stocks can be negative sum games too.
On the investopedia website, when they write about this, they say:"... it is not a zero sum game because wealth CAN BE created outside of the stocktraders."
Please note that they use CAN and not IS. Thus it is a conditional, it doesn't mean that wealth is ALWAYS created by the underlying companies, just as my example showed. Or just recall pets.com,webvan.com and other very promising tech start ups from the bubbletimes. They were all negative sum games eventually as far as stocktraders were concerned, although some traders made money by trading them.
Now for extra fun, I mention again, that stocks CAN BE zero sum games. When there is no dividends paid AND the company's value doesn't change in either way (if that actually happens is a different question, let's say my company in its first 2 years in the example ), then it is a zero sum game....