Trading Stocks and Options Debate with Bob

I have a part-time job with the SIPC, which has hired me to take a survey of certain stock and options
traders.  One of their concerns is that they might be served if some of the traders find out that, like Las
Vegas, the system of trading stock options is biased in favor of "the house".

Don: Bob, are you aware that when you buy a stock option at a lower strike price and sell another Call
option at a higher price that someone else is taking the other side of that trade?

Bob: Yes.

Don: Why don't you simply calculate the theoretical prices of each option and buy the lower priced call
and sell the higher priced call?

Bob: Actually my broker will not allow me to buy the higher strike priced call and sell a lower priced call.
Also, the call option that I purchase must have an equal or longer time to expiration than the call option
which I sell.

Don: Do these restrictions apply to market makers?

Bob: I don't know.

Don: I am here to inform you that it does not.  Bob, are you aware that the market makers use
computers and almost never buy and sell options unless there is a theoretical price advantage.

Bob: I don't know that for sure, but I can imagine that it may well be so.

Don: Are you aware that the options market makers typically make more money than you do and live in
places like Winnetka and Nassau County on Long Island?

Bob: They may well do so, but I watched the movie Star Wars and know that the "Force is with me".

Don: I am sure that it is, Bob. Good luck.  Would you please sign this informed consent form stating that
you have been informed you that the odds are against you as certainly as they would be if you were
gambling at a casino in Las Vegas?

Bob is showing to be signing the document.

Don: Thank You, Bob.



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