Options and futures are zero sum game?

Answer 1

Each futures or options contract requires two counterparties to the trade: long and short.

In other words, for futures contracts to materialise, there needs to be one buyer matched

with one seller at a specific point in time, dealing in certain asset, at a certain delivery point.

For options, a writer has to sell their contract onto a holder, who purchases the option.

Again, the deliverable is specified and strike price established.

Futures and options contracts are dealt daily on exchanges, such as CME or Euronext. These

exchanges provide rules for trading the derivatives, such as options and futures. Moreover,

these exchanges act as central counterparty to the trade between buyer and seller, long

and short in futures or writers and holders for options.

Futures contracts are marked-to-market daily, so that profit and loss on each position is

calculated and added or removed from the trader's account. Therefore, one point gain on

long position will equal one point loss on equivalent short position. The short pays long

the daily difference in contract price changes via central counterparty. Reverse applies

when prices go down, then short gains money and long loses it, but the difference will

always be zero.

So zero-sum game is: +1 gain on long equals -1 loss short which = 0