No, the covered call writer lost. When the covered call writer sold that call she converted her long stock ( a synthetic long call) into a synthetic call vertical. at expiration the short wing of the vertical lost money thus the cc writer lost money. BTW this is the main risk of cc players (i.e. the forfeiture of upside risk as opposed to the downside risk).
The whole point of my way-back-when original discussion of zero sum is to point out the fantasies or self delusions that many traders spin about trading. Options are indisputably zero (or as some have correctly pointed out, negative) sum. To deny it is like saying that casino games are somehow not designed to be less than zero sum games. It's not about how this knowledge can help you find some winning strategy; to me it's about the psychology of trading and how we deceive ourselves about our chances of true success. If you don't grasp, as Randy has clearly pointed out, that to win at this game means that you are taking money from someone else, then you have – again in my opinion – missed the most fundamental fact of trading.
It's like the old saying that if, in a poker game, you can't tell who the sucker is, then the sucker is you.
From: OptionClub@yahoogro ups.com [mailto:OptionClub@ yahoogroups. com] On Behalf Of Dave
Sent: Wednesday, April 21, 2010 1:49 PM
To: OptionClub@yahoogro ups.com
Subject: RE: [TheOptionClub. com] Re: are options a zero sum game?
Hi Randy,
Using my example of a covered call where the price of the underlying rises, you concluded:
"Net: $8 of the $30 gain goes to the covered call seller, $22 of the gain goes to the option buyer."
However in a zero sum game, a player (or in our case a trader), can only make money if another player looses the exact same amount. In the example above, who lost? The answer is no one. Both the writer and the buyer profited from rising valuation of the underlying asset. The transaction between the writer and the buyer was not a zero sum game.
Good trading -- Dave
From: OptionClub@yahoogro ups.com [mailto:OptionClub@ yahoogroups. com] On Behalf Of Randy Harmelink
Sent: Wednesday, April 21, 2010 11:21 AM
To: OptionClub@yahoogro ups.com
Subject: Re: [TheOptionClub. com] Re: are options a zero sum game?
But the option portion of the covered call WAS a zero sum game. That is:
Zero + Something = Something
Or, more specifically:
((gain/loss of option seller) + (gain/loss of option buyer)) + gain/loss of stock holder = gain/loss of stock holder
For example, suppose NFLX is purchased at $50, then a $55 call for sold for $3:
- If the price goes to $80:
(($3-$25) + ($25-$3)) + $5 = $5
Net: $8 of the $30 gain goes to the covered call seller, $22 of the gain goes to the option buyer. - If the price drops to $40:
(($3) + (-$3)) - $10 = -$10
Net: $7 of the $10 loss goes to the covered call seller, $3 of the loss goes to the option buyer
On Tue, Apr 20, 2010 at 1:35 PM, Dave <trading83@comcast. net> wrote:
When some writes a covered call and the value of the stock soars, the writer makes as much money as he planned, and the buyer of the call makes money. No one "on the opposite side" lost money – not a zero sum game.
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