Ask HN: Why be an option/futures/day trader when it is zero-sum? • Hacker News Board

Re: Ask HN: Why be an option/futures/day trader when it is zero-sum?

#61

Post by daniel-cussen » Fri, May 16, 2008, 6:59 AM UTC

In theory, a good speculator allocates money more efficiently. In 2004 this might have meant shorting Bear Stearns and buying stock in Google. Google could then sell stock to raise money, or take out a loan with its own stock as collateral, to pursue projects with the money. In theory, a good trader lends money to the companies that deserve those resources the most. So, as far as I can tell, it isn't a zero-sum game.

If the entire stock market does its job like this, money gets to googles more easily than it gets to pets.com. The economy uses capital more efficiently, and grows more than it would otherwise.

Of course, that's all in theory. In practice, being an investment banker is rough.

Re: Ask HN: Why be an option/futures/day trader when it is zero-sum?

#62

Post by wlievens » Fri, May 16, 2008, 7:55 AM UTC

breck wrote: post #34

paulgb wrote: post #28

Earlier quoted context omitted.

Sure, but that only works because you've chosen a discrete measure of how "good" a driver is. If you defined a "good" driver by some other measure (say, a function of risky behavior and fuel consumption), then 50% of drivers would be above the median and 50% would be below, by definition.

All 3 of you are right.

Lies, damn lies and statistics :-)

Re: Ask HN: Why be an option/futures/day trader when it is zero-sum?

#63

Post by eru » Fri, May 16, 2008, 11:14 AM UTC

ctkrohn wrote: post #52

Speaking as a trader at a major Wall Street firm... if you want a job that will allow you to relax, or if you aren't interested in "working to stay ahead," it's best to stay away from trading. Seriously. The hours aren't quite as bad as the investment banking/corporate finance guys, but I work 13+ hours a day, and my hours are not atypical for a junior guy. If you aren't going to work as hard as the competition, you'…

Please do so. That would be interesting.

Re: Ask HN: Why be an option/futures/day trader when it is zero-sum?

#64

Post by DougBTX » Fri, May 16, 2008, 11:14 AM UTC

calambrac wrote: post #53

nostrademons wrote: post #21

Earlier quoted context omitted.

90% (actually, about 98%) of American drivers are above average, owing to a statistical quirk. There are 6 million car accidents in the U.S. each year, out of roughly 240 million vehicles. At a minimum, that means that 97.5% of drivers get in no accidents that year. They join the big bulge of people who are "average", having perfect driving records or only an accident a decade or so. Accident frequency is a power law…

It's all in how you phrase the question, isn't it? Your analysis is right if we're talking about how a person's score on a driving test stacks up against the average score, gp's is right if we're talking about how people rank themselves among the population of all drivers (i.e., if 9/10 drivers think they're in the top five, then there are at least 4 delusional people).

I think nostrademons is essentially saying that the top nine drivers are indistinguishable from each other, as none of them have been in an accident. They are all "the best". Depending on how pessimistic you are, there are either no people in the top five, or nine people in the top five.

Re: Ask HN: Why be an option/futures/day trader when it is zero-sum?

#65

Post by eru » Fri, May 16, 2008, 11:18 AM UTC

jaydub wrote: post #14

I think it has to do with the "superstar" phenomenon that Taleb discusses in Fooled by Randomness & The Black Swan. Being a dentist, you are not likely to see a multi-million dollar salary - yet you can definitely live comfortably. What I believe Taleb's philosophy _was_ (he now remarks in bold text: "Finance is for philistines!" on http://fooledbyrandomness.com/ ) that by exploiting the random nature of markets he c…

That changes when you start to write options i.e. be the counter-party which does not have the right to buy/sell but the obligation.

Re: Ask HN: Why be an option/futures/day trader when it is zero-sum?

#66

Post by llimllib » Fri, May 16, 2008, 2:33 PM UTC

chwolfe wrote: post #11

utnick wrote: post #2

Don't some people, especially big organizations buy options/futures as hedges for another investment?... so it might not be a true zero sum game in the sense that some of the players aren't really playing to win.. they are just putting money in for insurance

Correct. There is a big difference in leveraging options when you own tons of stock in a company vs. using options as a high class lotto ticket. Example: Mark Cuban used options to guarantee he would be set for life no matter what happened to Yahoo's stock after they bought Broadcast.com for $5 billion (in stock mostly).

> Mark Cuban used options to guarantee he would be set for life no matter what happened to Yahoo's stock

Care to explain further, or point me to where I can read more?

Edit: I think the "equity collar" article linked below sorted me out.

Re: Ask HN: Why be an option/futures/day trader when it is zero-sum?

#67

Post by ca98am79 » Fri, May 16, 2008, 5:46 PM UTC

daniel-cussen wrote: post #61

In theory, a good speculator allocates money more efficiently. In 2004 this might have meant shorting Bear Stearns and buying stock in Google. Google could then sell stock to raise money, or take out a loan with its own stock as collateral, to pursue projects with the money. In theory, a good trader lends money to the companies that deserve those resources the most. So, as far as I can tell, it isn't a zero-sum game.…

This is exactly right. By making money day trading in the market, you are creating very needed services - adding efficiency and liquidity. Without these things, the markets wouldn't exist.

Re: Ask HN: Why be an option/futures/day trader when it is zero-sum?

#68

Post by chwolfe » Fri, May 16, 2008, 8:32 PM UTC

llimllib wrote: post #66

chwolfe wrote: post #11

Earlier quoted context omitted.

Correct. There is a big difference in leveraging options when you own tons of stock in a company vs. using options as a high class lotto ticket. Example: Mark Cuban used options to guarantee he would be set for life no matter what happened to Yahoo's stock after they bought Broadcast.com for $5 billion (in stock mostly).

> Mark Cuban used options to guarantee he would be set for life no matter what happened to Yahoo's stock Care to explain further, or point me to where I can read more? Edit: I think the "equity collar" article linked below sorted me out.

http://www.fastcompany.com/magazine/63/fasttalk.html

"The basic worry that comes with having lots of money is no different from what worries everyone else. Whether you've got $100 or $100 million, you don't want to lose it. After we sold Broadcast.com, I hedged my stock with synthetic indexes, in case the market cratered in the six months before I could hedge my actual Yahoo shares. It cost me $20 million, but I protected what I had. Todd Wagner and I had a credo: "Pigs get fat; hogs get slaughtered.""

Re: Ask HN: Why be an option/futures/day trader when it is zero-sum?

#69

Post by [deleted] » Thu, Sep 04, 2008, 1:04 PM UTC

chwolfe wrote: post #11

utnick wrote: post #2

Don't some people, especially big organizations buy options/futures as hedges for another investment?... so it might not be a true zero sum game in the sense that some of the players aren't really playing to win.. they are just putting money in for insurance

Correct. There is a big difference in leveraging options when you own tons of stock in a company vs. using options as a high class lotto ticket. Example: Mark Cuban used options to guarantee he would be set for life no matter what happened to Yahoo's stock after they bought Broadcast.com for $5 billion (in stock mostly).

[deleted]