Why do people trade options?

I’ve had multiple discussions with friends about options trading—what it is, how it works, and why people do it. But the main question remains the same: Why do people trade options? The answer can be summed up in one word: leverage.

What does leverage mean?

Let’s say you believe Stock X will go up. You could buy shares, hold them, and sell later for a profit. Simple enough. But what if you want to maximize your potential returns? That’s where leverage comes in—it allows you to amplify your position, though often by taking on more risk.

This is exactly where options can help. A great example was yesterday’s U.S. stock market action:

• At one point, Intel (INTC) was up 14%, while Apple (AAPL) was down 4%.
• If you held Intel shares, you gained 14%. If you held Apple shares, you lost 4%.

Now, let’s look at how options performed:

• Some Intel options skyrocketed by 5,600%, compared to the stock’s 14% increase!
• That means a €100 investment in Intel stock would have grown to €114.
• But a €100 investment in specific Intel options would have grown to €5,700.

Sounds amazing, right? Well, there’s a flip side. When a stock moves down, option prices drop much more drastically:

• While Apple stock fell 4%, some of its options lost 50%.
• A €100 investment in Apple stock would be worth €96, but a €100 investment in its options could be worth just €50.

The Takeaway

This is the power—and the risk—of leverage in options trading. Everything is magnified—both gains and losses. It’s risky, but at the same time, incredibly interesting for those willing to understand the mechanics behind it.

Would you trade options, or do you prefer sticking to stocks? Let’s discuss!