Wednesday, April 21, 2010

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

 

I was thinking of this, saw the comments and thought it is a zero sum game. But I wonder...

What if the following happened:

Assuming an option with no premium. It was bought and went at expiry 1 USD into the money. Thus this causes the assignment and the seller to loose a dollar. However, on the next day the market gaps down to 1 USD below the strike price. Thus causing the assigne to loose a dollar.

Since this is a call it means the seller is short and it would appear a zero sum game since they would have gained that dollar.

HOWEVER, what if the seller has sold so many options that they cannot go short the stock since their margins would not allow it. Thus they must do a cash settlement. Would in that instance not be an example where neither party wins, but somebody who had nothing to do with the option market wins?

Christian

--- In OptionClub@yahoogroups.com, Michael Catolico <mcatolico@...> wrote:
>
> i'd like to pole the group to learn your thoughts on whether or not
> options trading is a zero sum game. so what are your opinions and more
> importantly what is the rationale for your point of view?
>
> thanks
> michael
>

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