# Game theory and option trading

TSLA with a holding period of 6 months you are a short-term investor. If you decide to go long and the majority of other investors in terms of investment capital and investor population go long as well, you both will profit.

If you agree with overall market sentiment, you will profit in the short-term as you can see by the table. However, if you disagree, you will lose in the short-term. Even in this simple scenario, there is no pure strategy Nash Equilibrium or dominant strategy.

Your profits depend on how well you can predict the investment decisions of the majority of other investors but of course, the stock market and its investors are hard to predict. It very much makes sense that there is often never a Nash equilibrium in the stock market, and that is why the stock market is so volatile and fast-paced. After all, the stock market is a place people go for profit and not equilibrium.

Indeed, following this model gives us insight into why the stock market is highly unpredictable. Game theory can however, in some situations, can make it easier to interpret and understand. For instance, there is a mixed strategy equilibrium in this situation. Let us assume q is the probability that majority of investors will go long and 1-q is the probability they will go short. Then, let us assume p is the probability you will go long and 1-p is the probability you will go short.

Solving out this scenario, we can figure out that the mixed strategy equilibrium is that you go long half the time and the majority of investors go long half the time. Even though, this situation and Nash Equilibrium is not particularly telling, other situations could be of use to help you profit in the stock market. September 13, category: Mail will not be published required.

Notify me of followup comments via e-mail. TSLA with a holding period of 6 months you are a short-term investor. If you decide to go long and the majority of other investors in terms of investment capital and investor population go long as well, you both will profit.

If you agree with overall market sentiment, you will profit in the short-term as you can see by the table. However, if you disagree, you will lose in the short-term. Even in this simple scenario, there is no pure strategy Nash Equilibrium or dominant strategy. Your profits depend on how well you can predict the investment decisions of the majority of other investors but of course, the stock market and its investors are hard to predict.

It very much makes sense that there is often never a Nash equilibrium in the stock market, and that is why the stock market is so volatile and fast-paced.

After all, the stock market is a place people go for profit and not equilibrium. Indeed, following this model gives us insight into why the stock market is highly unpredictable. Game theory can however, in some situations, can make it easier to interpret and understand. For instance, there is a mixed strategy equilibrium in this situation. Let us assume q is the probability that majority of investors will go long and 1-q is the probability they will go short.

Then, let us assume p is the probability you will go long and 1-p is the probability you will go short. Solving out this scenario, we can figure out that the mixed strategy equilibrium is that you go long half the time and the majority of investors go long half the time. Even though, this situation and Nash Equilibrium is not particularly telling, other situations could be of use to help you profit in the stock market.

September 13, category: Mail will not be published required. Notify me of followup comments via e-mail.