Okay if (ignoring the whole transactional cost thing that makes it a negative game) we agree that options are zero sum, and we can agree that stocks are just another synthetic form of options (and vice versa), then for any point after ipo or upon issuance of new shares, a stock would absolutely have to be a zero sum phenomenon.
In the case of ipo or new stock issuance this is simply a special case in which a form of a synthetic option is created by the company (issuer or "synthetic option writer") and the purchaser of the newly issued stock.
Depending on your political or economic orientation, the value created by the issuance of new stock is either fictitious or based on other capitalized inputs. If you believe the value is real based on some tangible inputs – which obviously has to be the case to some degree with the exception of pure scams – that still will beg the question of zero sum but on a whole other level (capital, labor, and so on). The classic explanation of a stock's value being the present value of all future dividends (i.e. profit in excess of costs) is contingent on someone willing to be a counterparty (believer) in that value. But when viewed through the prism of an options trader, the value explanation is irrelevant since it only matters what the bid or offer price is currently and if there can be a meeting of parties to take a long and short position at that price level.
Sorry again for going off on this (old) tangent but as I've suggested, to me the attitude toward this question tells me a whole lot about how a trader deals with her or his own psychology and confronts the true odds of trading. To me, if someone insists that options (and by extension stocks, futures, and on and on) are anything but zero sum, then I want to do everything I can to get the other side of that person's trades.
From: OptionClub@yahoogro
Sent: Thursday, April 22, 2010 9:09 PM
To: OptionClub@yahoogro
Subject: RE: [TheOptionClub.
You realize posting something like this is going to cause a stir.... :-)
Can you elaborate a little? Because I do not understand your point of view.
I would think that zero sum by definition means zero.. so splitting hairs options are negative sum
and not zero sum like everyone talks about (you mentioned this before). With stocks if you focus
on a single transaction buyer and seller then yes we have cash paid - cash received = zero sum (not counting commissions and SEC fees, etc which makes it negative sum); but if you focus on the bigger picture (many transactions) you have an IPO price as a starting point and as long as the stocks price stays above that starting point then it is positive sum (not clouding this with number of shares changes). Then if it goes below the IPO price then it is a negative sum.. but this 'value' is constantly changing and will continue to change as long as the company is public and people want to buy and sell the stock. The point is it really depends on your time frame.
On April 23, 2010 at 3:00 AM mcatolico <mcatolico@mindsprin
I don't wish to prolong or belabor this but I would argue that stocks are also zero sum instruments. A finite beginning or ending has little to do with zero sum, it just adds definitive closure to the process for at least one party.
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