The TRANSACTION between the writer and the buyer OF THE OPTION was a zero sum game. The profit you mention is coming from stock ownership -- it had nothing to do with the option, except that the stock was used as collateral for the call. It could just as well have been cash that covered the call. Or margin. Who profits and loses ON THE CALL doesn't change because of the nature of the collateral.
That is, the stock holder profited $30 from the stock going up. But $25 of that value is then exchanged between option writer/buyer to settle the call at option expiration. The option writer LOST $25 on the call at expiration. It doesn't matter WHERE that $25 comes from -- the underlying stock, the bank, horse racing, the lottery, whatever. The source of the settlement value has no bearing on the zero sum nature of the option TRANSACTION itself.
As I said, if you add something to zero, you end up with something.
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
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