Options are leverage – an ability to control large positions with a small outlay of cash. The entire risk of an option is limited to the price you pay for it. Options allow traders to make money fast when they are right, but if the market reverses, you can walk away and owe nothing. This is the standard flow of brokerage house propaganda. It attracts hordes of small traders who cannot afford to buy stocks but want a bigger bang for their buck. What usually gets banged is the option buyer’s head.
Many beginners buy calls because they can not afford stocks. Futures traders who get beat up sometimes turn to options on futures. Losers switch to option instead of dealing with their own ability to trade. Using a shortcut to weasel out of trouble instead of facing a problem never works.
