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
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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