/biz/ - Business & Finance

>>12196704
>>12196730
There's what they were originally created for (as insurance or a cheap way to 'lock-in' a price that you can buy shares at), and then there's what you're able to do with them (chiefly, spread trading).

Probably the best way I could explain it is by using risk graphs. Number 1 is the risk graph of buying 100 shares of Apple outright (costing you $15,050). Number two is simply buying a 56 day call option (costing you $820). Number three is a 56 day vertical spread (costing you $283 in margin (max loss) with a max profit of $217). Number four is a 56 day ratio spread (costing you $1,515 in margin (max loss) and has a max downside profit of $485 and unlimited upside potential). You can do way more with options positions than you can with stocks (or any underlying) alone.