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Options like futures are created and canceled as shown by open interest.
Stock is created once and there is a limited amount, unless more is issued.
With options and futures there is no limit other then position limits put on
by exchanges.
Therefore options and futures can be a zero sum game if the players know
what they are doing. Stocks are based upon the greater fool theory.
Unless, of course, you are being paid to own the stock. If I buy IBM at
100 and it is an initial transaction and someone sells me IBM and it is a
closing transaction from a lower price and IBM goes down to 60 then I have
lost 40 dollars, marked to the market and the party that sold it to me made
the difference between his purchase price and the 100. Stocks are not a
zero sum game unless you use other measures to secure profits and reduce
risk.
----- Original Message -----
From: "Infernal Elk" <infernalelk@xxxxxxxxxxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Thursday, August 01, 2002 5:09 PM
Subject: Re: [RT] bear market stats
>
> >> This thread is dancing around something I've wondered about for
> >> years. In the derivitives market, I fully understand where the
> >> money comes and goes from. If I buy a futures contract or option
> >> at 50 and it goes 100 and I sell it, my account is credited with
> >> 50 and one or more other traders accounts are debited 50. At the
> >> end of the day the books balance. However, If I buy IBM stock at
> >> 50 and it goes to 100 and I sell it, where does that money come
> >> from? Is it offest from someone else's account or is this new
> >> "wealth". Do the books balance or did the pie get bigger.
> >> Conversely if I buy IBM stock at 100 and it goes to 50 and I sell
> >> it, where did that money go. Did it get credited into someone
> >> else's account or did it return to the place it originally came
> >> from. Was "wealth" lost and did the pie shrink?
>
> what's interesting about this thread is that it is, in some ways, a
> discussion on whether the "market" is a zero-sum game. i remember
> being in an involved (& somewhat heated) discussion on this topic some
> time back, to no real conclusion.
>
> what i came away from that discussion was the realization that it's
> difficult to define just what the "system" is, that is, the arena of
> the game. if one defines the arena or system as the loci of
> transactions (i.e., the pits, the specialist desk @ the nyse) then the
> answer is fairly simple -- it's a negative sum game for the "players"
> (excluding the brokers, specialists, etc). that's obvious, because
> the arena is quite limited in scope.
>
> there's also the temporal dimension of defining when the "game" ends.
> if i buy an option, someone sells it to me, & someone (or both) pays
> the commission(s). one person will "win" and one will "lose" come
> expiry (assuming that both hold to expiry, of course). the main point
> here is that the options & futures "game" has a TERMINATING DATE at
> which point one can determine who "won" & who "lost".
>
> with stocks & real estate, there's no terminating date of the "game".
> this makes discussing whether the equities or real estate market is a
> zero-sum game difficult. also, as the definition (implicit or
> explicit) of the arena of the game widens in scope, things get messy.
>
> i add these comments only because it seems this thread is dancing
> around the issue of "zero-sum game". it's a topic which is more
> difficult than both my brain cells can handle.
>
> if there are game-theorists/mathematicians etc who would like to
> comment, it might straighten (or perhaps further confuse!) the issue.
>
> in any case, this is fascinating, though in all honesty i think i can
> trade reasonably well without knowing whether i'm participating in a
> zero-, negative- or a positive-sum game...
>
> - *lk
>
>
>
>
>
>
>
>
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