The other thing worth noting is that a well functioning capital market is not zero-sum, it puts the capital in the most profitable growth opportunities. So speculators may be incorporating information into prices that has value. Of course they may be incorporating disinformation as well; hence the importance of regulation against cornering the market or pump-and-dump schemes.
Aren't options zero sum? I don't think anyone would suggest the entire stock market is. But every penny you make from an option is a penny someone else loses, unless I'm missing something.
Right, sorry options are zero sum in a money sense, but not in a utility sense. If I write a covered call on shares that I own and a speculator buys it, we both might end up with returns distributions that are preferable to what we had before and so expected utility of wealth is increased though wealth itself perhaps isn't.
Also you have to remember that when options mature in the money they will be exercised resulting in transactions in the actual stock market which is more obviously not zero sum.
So suppose I think Yahoo is under-priced at the moment. I could
1. Purchase a share of Yahoo on the open market, exerting buy pressure on the stock driving up the price
2. Purchase a call on Yahoo; Yahoo's price appreciates some if I'm right putting my call option in the money. If the option writer was naked, they have to go to the open market to purchase a share for me to buy, resulting in buy pressure on the stock driving up the price.
Obviously the link in #2 is not as direct, but potentially prices in the actual stock market can move to incorporate information in the purchases and sales of option contracts as they are exercised. And one step further removed a long equities trader might use the size of the outstanding call and put options market on a stock to forecast price changes.
