## Option trading zero sum game

The zero-sum game is a game theory in which one player's gain is equal to other players' losses. The player can only compete for a slices of a fixed cake is an analogy to describe the ZSG. The sum of gains will always be equal to the sum of losses; the whole summing to zero. Thus, each binary option has a total value potential of \$100, and it is a zero-sum game —what you make, someone else loses, and what you lose, someone else makes. Each trader must put up the capital for their side of the trade. In the examples above, you purchased an option at \$44.50, and someone sold you that option. For any two players zero-sum game where a zero-zero draw is impossible or non-credible after the play is started, such as poker, there is no Nash equilibrium strategy other than avoiding the play. Even if there is a credible zero-zero draw after a zero-sum game is started, it is not better than the avoiding strategy.

Despite the presence of this opportunity, a lot of people are of the opinion that options trading is a zero-sum game. A zero-sum game as in, your gain translates to someone else’s loss and vice versa. In a way, just like a game of poker. Professional options traders find this claim laughable. However, if you look at all the traders and investors out there in aggregate, trading does become a zero-sum game. When the market maker buys the stock as a hedge against her short call, someone else is selling that stock to her. If the stock goes up, the person who sold the stock misses out on the profits. Myth #3: Options Are A Zero Sum Game In theory, it would sound correct to say that every contract has a buyer and a seller, and where the buyer profits the seller loses (and vice versa). But that theory ignores something very important: market makers. Most people consider options to be a zero sum game. When you make a trade, someone takes the other side and when one of you gains, the other loses an equal amount. From that definition of ‘zero sum’ then it’s difficult to claim that options are not a zero sum game. However, I do make that claim.

## Myth #3: Options Are A Zero Sum Game In theory, it would sound correct to say that every contract has a buyer and a seller, and where the buyer profits the seller loses (and vice versa). But that theory ignores something very important: market makers.

### Most people consider options trading to be a zero sum game. When you make a trade, someone takes the other side and when one of you gains, the other loses an equal amount. From that definition it’s

The thought that options represent a zero sum game assumes that all trades are standalone plays and that if you profit, the other person most have lost. Just as our trader above decided that transferring ownership of the shares to another investor would be a good idea at \$75/share, so too does the covered call writer. Zero-sum Game in Binary Options. Binary options offer two simple outcomes: either you are correct and your binary options expire in the money, or you are wrong and your binary options expire out of the money – hence the entire zero-sum game. If you are right, you get your money back, plus the return, and if you were wrong, you get nothing. All posts tagged: option trading zero sum game . A Zero-sum game is a situation where one person’s profit is equivalent to the another’s a loss so that the net change in wealth is Zero. A few popular examples of zero-sum game is Poker and gambling. In poker, the amount won by one player is equal to the combined losses of the other Say you buy car insurance. Transaction costs actually make options a less than zero sum game. To give an analogy, chess is a classical example of a zero sum game. This was a while ago, and I think I was talking about shorting a put or a call option. Questions, ELI5s, etc belong in the weekly sticky.