Subject: Re: On Charlie Munger's centenary, and albatrosse
One interesting thought is that, to the extent that I'm making a living from the option market rather than actually being an owner of Berkshire Hathaway the company, I am playing in the zero-sum part of the markets: it's just a side bet on how Berkshire stock is doing.” (bolding again mine)

In real life, I do not believe that the options market is zero sum. The reason is that market makers hedge their options positions with actual stock. This means that when

1) Options traders buy more calls than they sell, and/or sell more puts than they buy, market makers on the other side of the trades buy and hold more BRK stock to hedge their long-calls and short-puts positions
2) Options traders sell more calls than they buy and/or buy more puts than they sell, market makers on the other side of the trades sell BRK stock short to hedge thir short-calls and long-puts positions.

Indeed, there are special rules for options market makers that allow them to more easily and with fewer restrictions make short sales to hedge their options positions.

The upshot of all of this is that an options trader taking a long position (buying calls or shorting puts) she can quantitatively be assigned an equivalent number of shares she has purchased through her impact on the net positions of market makers. And vice versa when she goes short (shorts calls or buys puts).

Sorry to break the clean, but false, distinction between side-bets and bets. Even bookies lay off large bet positions by betting at the track.

R: