I don't even know where to begin in regard to an intelligent response.
and for good reason !!!! The work of Black-Scholes re options projections resulted in an unprecedented amount of successful analyses and fantastic earnings.
However, your attempt to equate the use of 'smart money' analysis with the failure of LTCM is, in all fairness, a case of apples and oranges. As the Wiki article clearly indicates, the failure of LTCM was the direct result of overreaching / greed, in that they attempted to diversify their investments into areas that had not been previously researched and tested once they had effectively saturated the markets in areas that HAD been previously researched and tested !
PS after the 'bailout' LTCM investors still beat the S&P !!!
As to the zero sum game ... give
http://www.turtletrader.com/pdfs/zerosum.pdf a read. It is basically summarized by the following quote ...
"Trading is a zero sum game when measured in respect to underlying fundamental values. No trader can profit without another trader losing. People trade because they obtain external benefits from trading. These benefits include expected returns from holding securities, risk reduction from holding correlated assets and gambling entertainment.
Three groups of stylized characteristic traders are examined. Winning traders trade for profit. Utilitarian traders trade because their external benefits of trading are greater than their losses. Futile traders expect to profit but for a variety of reasons their expectations are not realized.
Winning traders make prices efficient and provide most liquidity. Utilitarian and futile traders effectively underwrite the winning traders' efforts." ...
... winning traders can only profit to the extent that other traders are willing to lose. Traders are willing to lose when they obtain external benefits from trading. The most important external benefits are expected returns from holding risky securities that represent deferred consumption. Hedging and gambling provide other external benefits. Markets would not exist without utilitarian traders. Their trading losses fund the winning traders who make prices efficient and provide liquidity."
Lawrence E. Harris
Chair in Finance, University of Southern California
beyond this I'll drop the issue, and allow everybody who chooses to follow the 'herd' in thinking that the stock market is not a zero sum game to do so undisturbed.
!
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