6 ms·

I understood that options trading is zero-sum: to win, someone else has to lose. In this sense it’s like gambling, also in that the house always wins because th

• djoldman 4y ago
  Yes, by definition one option trade for puts or calls with extrinsic value is zero-sum as with no other trades, the final settlement price zeros out the extrinsic value. Many options trades are done in combination with other products, however, which allows for non-zero sum.
• yold__ 4y ago
  Not if you factor in risk aversion and declining utility. Most investors would happily give up some upside for downside protection. This is where option strategies are not zero sum
• jonfw 4y ago
  Options are zero-sum in the same that insurance companies are
• ultrasaurus 4y ago
  With the fees, options are (slightly) negative sum. I'm a boglehead, but as I see it there are only 2 valid reasons to consider option trading: - Hedging: e.g. if a big part of your comp is in illiquid private stock in a company whose outcome is highly correlated to IndustryX, you may want to hedge that with options. Not positive sum in absolute terms but you're paying to reduce risk. - Tax arbitrage: e.g. On a block of stock you got from an IPO. Positive sum from your perspective. Both are a lot of work to do right and neither one is a silver bullet.