What is the concept of options trading?
Please explain it with simple example.
In the most simple terms it is taking a position on a stock or commodity(long or short) without putting up the the entire capital/margin for said item. The option has a time limit (most common are one to three month options) where if the item moves the way you intended the price of the option will increase and you can sell it at a profit, or one may exercise and take delivery of the item. In stocks, one option is equal to 100 shares. In commodities, it us a one to one ratio. This is for the US EXCHANGES.
Re: options trading
Would the gentleman provide an opinion on whether option trading is used primarily as a means to increase returns or decrease "risk" or a combo of both.
If 1st case, how does this approach compare with simply buying and selling stocks.
If 2nd case, how do you define risk.