1. Limited Risk  

   The maximum loss for an option buyer is limited to the premium paid for the option, and they will not incur losses beyond this amount. This limited risk makes options a relatively safe investment tool. The risk is always within what you anticipate. If you believe that a stock will surge, being a buyer of American-style options will be your best choice.

 

  1. Leverage Effect  

   Options provide a leverage effect, allowing investors to control larger underlying assets with a smaller option premium. If the price of the underlying asset fluctuates significantly in a favorable direction, the option buyer can achieve higher returns. When we identify that a particular stock will rise in the short term but its price is too high to justify a direct investment, the cost versus benefit may not be attractive. In such situations, we can use a small option premium to leverage this large asset to generate profits, which exemplifies the leverage advantage of options.

 

  1. Flexibility  

   Option buyers can choose to exercise their options at any time before the contract expiration date (for American options), providing flexible trading opportunities. This flexibility enables investors to capitalize on the most favorable moments for profit.

 

  1. Diverse Strategies  

   Option buyers can employ a variety of investment strategies, such as buying call options, buying put options, straddle strategies, and spread strategies, to adapt to different market conditions and investment goals. These strategies can be used to seize opportunities during market uptrends, downtrends, or sideways movements. As option buyers, there are always opportunities to make substantial profits, regardless of the market’s poor performance.

 

  1. Hedging Risk  

   Option buyers can use options to hedge the risks of their existing positions. For example, stock investors can purchase put options as insurance against potential losses resulting from declines in stock prices.

 

In summary: As purchasers of options, our risk is comparatively low, allowing us to engage in substantial underlying assets, such as those worth $100 or even $1,000, while investing as little as $10. At the same time, when opportunities arise, our potential returns are limitless, embodying the classic principle of achieving big gains with a small investment.