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Why Is an Option a Zero-Sum Game?

The option contract (option) is a zero-sum game (not a win-win situation) because the gains made by the option’s buyer (option-holder) would be equal to the losses incurred by the option’s seller (writer), and vice versa. Furthermore, the gains proportionately relate to the losses: the higher the gains on one leg, the higher the losses on the other, and the lower the gains on one leg, the lower the losses on the other, all in the same proportion.

In a situation where gains (losses), on one leg, are zero, losses (gains) will likewise be zero on the other.


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