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How much can I earn with Options?


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How much can I earn with Options?

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  #51 (permalink)
Legendary Market Wizard
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kevinkdog View Post
Here is a simple example:

I buy a mini S&P futures contract. I hold for a month then I sell, and I make $5000.

During that time, someone held the short side of that contract. It could have been multiple people, it could have been hedgers, it could have been speculators, doesn't matter. But you add up all the people holding that contract during that time I held it, and the amount they lost on that futures contract adds up to $5000.

My $5000 gain + their $5000 loss = $0 (zero sum)

Note I am only talking about the futures market transaction being zero sum.


Prices are not linear.

If I sold you that contract and my trade was sell to close my P/L is not related to your P/L in ANY way. The additional amount that I could have made or lost is theoretical. Number of contracts is not finite.

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  #52 (permalink)
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wldman View Post
Prices are not linear.

If I sold you that contract and my trade was sell to close my P/L is not related to your P/L in ANY way. The additional amount that I could have made or lost is theoretical. Number of contracts is not finite.

Did I ever say your P/L was directly related to mine? No.

What is related is the sum total of all the longs and the sum total of all the shorts.

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  #53 (permalink)
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wldman View Post
Prices are not linear.

If I sold you that contract and my trade was sell to close my P/L is not related to your P/L in ANY way. The additional amount that I could have made or lost is theoretical. Number of contracts is not finite.


Let's use your example:

wldman buys a mini S&P Jan 1. Group X holds the short side of that contract. S&P is at 2500.

wldman sells that long contract to Kevin on Jan 31, with S&P at 2800. wldman makes 300*50 = $15K. Nice trade widman.

Now Kevin is long that contract, Group X is still short.

Kevin now sells it Feb 6 at 2700. Kevin loses 100*50 = -$5K. Kevin is obviously an idiot.

Now what about Group X? They sold short at 2500, now price is 2700. They have lost $10K

$15K - 5K - 10K = 0 (zero sum)


If this is wrong, someone please show me.

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  #54 (permalink)
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blb014 View Post
Thanks for your response Kevin. I think your opinion has merit from a day traders perspective.

My response was not "my opinion" it is simple math, and it applies to more than just day traders. If I stated something wrong, please correct me.

Sorry I was unable to help you understand this.

Good day.

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  #55 (permalink)
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I'll continue with my understanding, you continue with yours.

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  #56 (permalink)
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wldman View Post
I'll continue with my understanding, you continue with yours.

I am always willing to learn. Please show me exactly how anything I said is incorrect.

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  #57 (permalink)
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I've always wanted to chime in on the zero-sum game thing, but I've never had the chance.

In particular, when someone says "there's a buyer and a seller, one will be the winner and one will be the loser" (assuming we're talking about 1 transaction where buyer/seller are on opposite sides) that always puzzled me.

Couldn't I be buying on a downtrend for just a few ticks on a retracement, and couldn't the person who sold it to me be holding for longer and we could both end up winners? This of course assuming that both the people that entered into the transaction were flat to begin with.

Intuitively I feel this is not stricly related to the zero-sum game argument you guys are discussing but I've always wondered.

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  #58 (permalink)
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xplorer View Post
I've always wanted to chime in on the zero-sum game thing, but I've never had the chance.

In particular, when someone says "there's a buyer and a seller, one will be the winner and one will be the loser" (assuming we're talking about 1 transaction where buyer/seller are on opposite sides) that always puzzled me.

Couldn't I be buying on a downtrend for just a few ticks on a retracement, and couldn't the person who sold it to me be holding for longer and we could both end up winners? This of course assuming that both the people that entered into the transaction were flat to begin with.

Intuitively I feel this is not stricly related to the zero-sum game argument you guys are discussing but I've always wondered.

On any individual trade, the game is not zero sum, unless both parties enter and exit at the same time on the opposite side.

But with futures, when you take the whole aggregate sum total of all the transactions with a certain contract, that is zero sum. It is because every contract has 2 sides - a long side and a short side.

For instance, take the Dec 2017 mini S&P contract. There were millions of transactions, millions of participants, all doing different things. If you take the net gain/loss of all the long positions, it will exactly equal the net gain/loss of all the shorts. Zero Sum. In the aggregate, the winning side took from the losing side.

Doesn't mean that there weren't shorts that made money, or that there were longs that lost money. That might be confusing.

This is not how stocks work, because there is an ownership stake. Everyone here could buy Google stock, and in 5 years, we could all be winners, and that does not mean there were losers on the other side of our trades.

Hopefully I explained it well. If not, please let me know.

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  #59 (permalink)
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Thanks Kevin, no, you explained it well and I intuitively understand the difference between stock and futures.

I think I understand what you say about taking one contract like the ES Dec '17 and summing all the longs and all the shorts you should get zero. Does that account for rollovers?

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  #60 (permalink)
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xplorer View Post
Thanks Kevin, no, you explained it well and I intuitively understand the difference between stock and futures.

I think I understand what you say about taking one contract like the ES Dec '17 and summing all the longs and all the shorts you should get zero. Does that account for rollovers?

My example takes Dec 2017 contract, or any contract, by itself.

Rollovers would be accounted for with the individual contracts. Say you bought Dec 2016 contract, and held and rolled into March 2017, then rolled into June, etc. You'd have a P/L for each of those contracts. So would everyone else who held those contracts. And the aggregate of all Dec 2016 contracts is zero, of all March 2017 contracts is zero, etc.

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