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Comment by docandrew | Hacker News Reader

I understood that options trading is zero-sum: to win, someone else has to lose. In this sense it’s like gambling, also in that the house always wins because they collect the fees no matter what. Like gambling I’m sure there are plenty of people with success stories too. Is this assessment wrong?

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With the fees, options are (slightly) negative sum.

I'm a boglehead, but as I see it there are only 2 valid reasons to consider option trading:

- Hedging: e.g. if a big part of your comp is in illiquid private stock in a company whose outcome is highly correlated to IndustryX, you may want to hedge that with options. Not positive sum in absolute terms but you're paying to reduce risk. - Tax arbitrage: e.g. On a block of stock you got from an IPO. Positive sum from your perspective.

Both are a lot of work to do right and neither one is a silver bullet.

Yes, by definition one option trade for puts or calls with extrinsic value is zero-sum as with no other trades, the final settlement price zeros out the extrinsic value.

Many options trades are done in combination with other products, however, which allows for non-zero sum.

Not if you factor in risk aversion and declining utility. Most investors would happily give up some upside for downside protection. This is where option strategies are not zero sum

Options are zero-sum in the same that insurance companies are

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