What we do is mostly sell puts and calls to others. Anything with stocks is a zero sum game. For every winner there is a loser. When we sell-to-open a contract we are immediately paid a premium from the buyer. It is like issuing an insurance policy that if the stock drops below the strike price, we insure that we will purchase the stock at the agreed upon strike, no matter how low it goes. If it doesn't drop below the strike, then We keep all the premium and the contract expires worthless at the end of the contract date, just like when you use up the full term of your car insurance policy and never file a claim. You are out the premium you paid, but the insurance company made money selling you that policy that you paid the premium on.
Clear as mud.
To expand on the ‘zero-sum” principle
Derivative trading is not some kind of nefarious method of accumulating wealth
While it’s true that every single option contract has both a buyer and seller, it is similar to any transaction….
It’s a mutually agreed upon price based on market conditions and the strategic belief of each party
Yes… there are unequivocally both a winner and loser , however each party may be taking this trade with a separate position that protects their downside or caps their upside
It is definitely not for the novice…
The average individual that wishes to participate in the stock Market should simply invest monthly in an overall market index fund
After all, we are Just small business owners … if we operate our companies successfully, we are capable of profits and investing in other companies via the stock market is a tried and true solid method of diversification