Hi Jack,
Actually, the seller made money on the premium from the option he sold, and he did not experience any real financial loss. Both parties in the transaction made money, violating the rule of a zero sum game.
Good trading -- Dave
From: OptionClub@yahoogro
Sent: Friday, April 23, 2010 6:50 AM
To: OptionClub@yahoogro
Subject: RE: [TheOptionClub.
You are mixing apples and oranges. You can buy a call option and a bucket of gold. As long as the gold appreciates more than the call loses, you are making money. Still the option trade was zero sum.
The seller is still happy. He made money on the stock, even though he lost on the option.
From: OptionClub@yahoogro
Sent: Thursday, April 22, 2010 2:40 PM
To: OptionClub@yahoogro
Subject: RE: [TheOptionClub.
Hi Randy,
Actually, the call writer didn’t “loose” at expiration – he had made the decision in advance to limit his profits. The amount of money beyond the strike price is the opportunity cost of that decision, not a real or financial loss. Neither the option writer nor the option buyer experienced a real or financial loss. The writer profited from the premium on the option he sold (and also the rise in stock price), and the buyer profited from the increase in option value. Both profited from the option transaction – neither one experienced a real or financial loss -- which violates the rule of a zero sum game.
But again, if you equate opportunity cost to real loss, then most of us are hopelessly in the hole financially since we didn’t mortgage all of our belongings and use the money to buy Google in 1996 – LOL.
Good trading -- Dave
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