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Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: Uncle Frank who wrote (64378)	8/7/2003 10:43:46 AM
From: Greg Higgins	Read Replies (2) \| Respond to of 77398

"Zero-sum game" implies that both writers and buyers can expect to end up with $0 gain/(loss). I think that means that one party will win what the other loses, Ron. This assumes that all players in the market are equal and that is simply not true. When you buy or sell an option, you are not buying it from or selling it to another (investor/trader/speculator), you are buying it from and selling it to a market maker. The market maker gets paid to sell you the option (this is the bid/ask spread) and has at his disposal a variety of methods to offset the effect of the option on his position; this is called hedging. Market makers are almost always position neutral; they don't care whether the stock goes up or down.

To: Uncle Frank who wrote (64378)	8/7/2003 10:44:26 AM
From: rkral	Read Replies (1) \| Respond to of 77398

OT .. Frank, re "[Time-value accrues to the seller] implies that the seller always starts out ahead. He receives a premium for entering into the transaction, while the buyer has to pay a premium." Agreed, but I think it means more than that. Not only does the seller "start out ahead", I think the statistical expectation is ... the option writer ends up ahead .. with the time-value portion of the premium, and the option buyer will lose the time-value. Any single option trade, or course, can be significantly different from the expectation. Regards, Ron P.S. Significantly edited after the initial post.