An option is exactly what it sounds like.
An option is a choice.
"It's a way to control a lot more stock for a very limited amount of money.
It allows you to start off with a small amount of money and still make very good returns dollarwise."
Benefits of Trading Stock Options
Contrary to popular belief, buying options carries much less risk than owning stock.
Get Started With Less
Options are a fraction of the cost of owning the stock, yet they can have similar return. This allows you to start investing with less money.
Keep Up With Competition
Options are growing in popularity, if you don’t use them to your advantage, you may not be able to keep up with your competition.
If you buy 100 shares of a $100 stock you risk $10,000 and the stock must go to $200 for a 100% gain.
If you buy one call option at the 100 strike for $100. The stock needs only to finish at 102 for a 100% gain.
And the $9,900 you left in your account is safely earning interest.
Unlimited Profit Potential
If you buy a call, you make money as the stock rises above the cost of the option. How high can a stock price go? There is no limit.
If you can think of a something the market will do in the future, there is an option strategy to profit if you are right.
Options can be used to provide insurance on your investments. You can buy insurance on your stock positions, the market as a whole, or on other option positions.
Use Options to Buy Stock
Smart Investors can use options to buy stock at a lower price than the open market.
Option Volume at the Chicago Board Options Exchange (CBOE) has grown from 357 million in 2004 to 1.271 billion in 2018. Over the same time period, the lower chart shows that the number of searches where people enquired “What are Options?”, quintupled.
CBOE Option Volume in 2004
CBOE Option Volume in 2018
The truth is, options are less risky than buying or selling stock. This is probably the number one myth about options. It is usually stated by folks that don't understand how options work.
There is much more to be said about options. Not learning about them could put you at a disadvantage in the markets.