The problem with the story is it works if you invest in stocks and don't use margin. Lots of people are playing options and using margin. They risk getting called, and at that point they don't have the ability to buy-and-hold.
Again, all options are a zero sum game. No value is created or destroyed (outside of trading fees), just transferred between parties.
I think you might be confused by the name "binary options."
The word "binary" doesn't refer to the fact that they are specifically zero sum. This doesn't need to be called out, because again, all options and futures are zero sum.
The "binary" qualifier refers to the fact that they result in "yes/no" outcome. Did the thing you bet on happen? Yes? You win. No? you lose everything.
I know what options are, and I know what binary options are.
It's not true that no value is created or destroyed on transfer. Transferring or obtaining the asset might be extremely valuable to someone. Market conditions change. And so on.
The simple fact that you can create value for others without stealing that value from someone else means the economy is positive sum.
If all economic transactions were zero sum, then growth would be impossible.
Things like GDP, the stock market, etc grow every single year on average because they are positive sum.
That’s why it’s most smart to just buy-and-hold boring index funds. You’re taking advantage of the positive sum nature of all business in aggregate, instead of playing the zero-sum game of short term trading against other market participants.
I'm not suggesting that all economic transactions are zero sum. I'm just using that idea to expose what value really is.
> No value is created or destroyed (outside of trading fees), just transferred between parties.
That transfer is the value. In fact, that's pretty much the point of finance in its entirety - moving around capital/risk is valuable in and of itself.
An option is a zero sum game. The payoff on a long option position is the same as on the short position but with the opposite sign. This means the profit on one side of the deal always comes from a loss on the other side, and the other way around. That's the definition of a zero-sum game.
It isn’t like a coin flip though. You can sell the option before expiration. And the seller of the option is harvesting premiums for their own reasons. The whole game is much more complex. I haven’t thought about whether it’s zero sum in super great detail but my gut says it isn’t.
