Tuesday, April 20, 2010

Re: [TheOptionClub.com] Re: are options a zero sum game?

 

I mean no disrespect, but what is the point of the question? 


Are Options a zero sum game - sure I guess -- does that make it a bad trading vehicle?
Can Option traders learn from reading books on poker -- you bet.  Risk Management, 
Probabilities and Statistics are all inherent skills of a successful poker player/gambler, 
in fact one of the corner stones of successful money management is an anti-martingale 
concept first introduced in gambling literature.  You may have heard of VanTharpe's paper 
on positions sizing, "R" multiples, trading systems, and expected returns, a discipline
practiced by countless successful investors first gleaned from a book on black jack.

Also recall when you pay for , or receive credit for an option(s), it's not a zero sum between
buyer and seller.  Market makers get the spread, clearing house gets a cut, exchange fees take a bite,
exchanges compete for order flow which can be folded into additional fees, some brokers
take the other side of the trade, etc....

Are trading options like poker - maybe, is trading stock a gamble?  sure...not many rewards are
without risk.  The responsibly trader will quantify that risk and manage it throughout the trade.

On Tue, Apr 20, 2010 at 9:43 AM, Ricky Jimenez <rickyjim@bestweb.net> wrote:
 

It is much better to discuss the situation without numerical examples,
which distract from the obvious. Both a poker game and a particular
INDEX option issue have a definite start and end of their existence.
Thus the total credits and debits received by the participating
players during that time have to net out to zero. There are no
residuals in these forms of bartering so the analogy between the two,
in that superficial respect, is OK. Stock and futures options beget
residual short and long positions at the end of their lives so the
poker analogy is not as good here. Also buying and selling rare
coins, works of art and stocks during a fixed time period have
credits and debits net out to zero but the residual at the end of the
period would make a poker analogy at least as weak at it is for
options.

So just what is the point with the poker/options analogy? Will
options traders get better by reading books on poker?

On Mon, 19 Apr 2010 21:58:51 -0500, "mcatolico"
<mcatolico@mindspring.com> wrote:

>No, pick any expiration price and the net result is the same. For every open
>long position there is an open short position (hence the term "open
>interest"). In an alternate example where mary's option goes to say $20 she
>makes $17 and the market maker loses $19 (the original open short position
>less the $20 expiration minus initial $1 credit). I still make $1 and jack
>still makes $1 thus 1+1+17=19.


>
>-----Original Message-----
>From: OptionClub@yahoogroups.com [mailto:OptionClub@yahoogroups.com] On
>Behalf Of Ricky Jimenez
>Sent: Monday, April 19, 2010 9:45 PM
>To: OptionClub@yahoogroups.com
>Subject: Re: [TheOptionClub.com] Re: are options a zero sum game?
>
>Maybe you are saying that for a fixed particular underlying, strike,
>put or call, and month, the total of the debits and credits for an
>option that expires unexercised are zero. Now take your example and
>assume that the option expires ITM. Then the transactions are the
>same but in that case, are you also insisting that Mary lost $3? She
>might have made a fortune.
>
>On Mon, 19 Apr 2010 20:57:13 -0500, "mcatolico"
><mcatolico@mindspring.com> wrote:
>
>>Ricky I don't know why you have a hard time with this. If I buy abcde 80
>>strike from a market maker for $1 as a new contract and sell it to jack for
>>$2 and he sells it to mary for $3 and it expires worthless, it all adds up
>>to zero net: market maker makes $1, I make a dollar, jack makes a dollar
>and
>>mary loses $3. That's zero sum. Show some other way for this to end that
>>doesn't wind up in net zero and I will give you the difference.
>>


__._,_.___
Recent Activity:
The goal of TheOptionClub is to provide a forum for members to work together for the purpose of furthering our individual understanding option trading.  All messages and postings, and any materials circulated are provided for discussion and educational purposes only.  No statement contained in any materials from TheOptionClub should be considered a recommendation to buy or sell a security or to provide investment, legal or tax advice.  All investors are encouraged to consult a qualified professional before trading in any security.  Stock and option trading involves risk and is not suitable for most people.  There is no guarantee that any information provided is accurate and, may in fact, be wrong.  It is understood that the participants in TheOptionClub have varying backgrounds and degrees of experience in option trading, and that regardless of experience each member is considered a student.  As such, any information distributed through TheOptionClub should be considered with a critical mind and not relied upon as an authoritative source.

To unsubscribe from TheOptionClub, send an email to:
OptionClub-unsubscribe@yahoogroups.com
MARKETPLACE

Stay on top of your group activity without leaving the page you're on - Get the Yahoo! Toolbar now.

Welcome to Mom Connection! Share stories, news and more with moms like you.

Hobbies & Activities Zone: Find others who share your passions! Explore new interests.

.

__,_._,___
Posted by at

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)