Ex options trader here. You can sell me an option and we both make money:
Let's say the option expires worthless. You make money having done nothing but collect my premium.
I take the option, and because it's positive gamma, when it goes up I make money, and I flatten. When it goes down, I'm short, and I make money and buy. I keep doing this buying low and selling high until I've made more than the premium.
---EDIT
My point is there can be reasons for both sides to do the trade. Nobody needs to be "harmed". The line of reasoning that says one of you must lose misses the point. If you buy insurance, either your house burns down or it doesn't. That doesn't mean either you or the insurance company was harmed.
I'm not saying that if you buy an option that ends up OTM that you'll globally lose money, but in the context of that one specific trade you lost. Perhaps you're willing to take that loss in order to achieve some other goal, but my statement was about a single contract, not a general collection of trades.
You are comparing one side of one trade to the other side of many trades.
Each individual options trade is zero-sum (one side wins exactly as much as the other side loses, barring transaction fees), as is the total of all options trades.
> You are comparing one side of one trade to the other side of many trades.
The whole point of having financial instruments is that you can mix risks. Whether each individual one results in heads or tails is not actually the point, the point is entities can shape the risks they want to be exposed to.
No. Options also provide a fundamental service - insurance. So, in the case where the option buyer is paying for insurance, sellers add value by underwriting the risk that is being insured. Hence, both the buyer and the seller win - the buyer gets insurance, the seller gets cash.
