Likes ReceivedLeverage Blade Chapter -- "Options"
Many people have heard of "options," how someone made a fortune with calls, or how someone profited from puts. But few dare to touch them or truly understand how to play the game. At the mere mention of "options," they say: "Oh, I don’t dare to play—it’s too complicated and too dangerous."
Actually, I want to say: Options aren’t some terrifying monster; they’re just a tool, and the key lies in how you use it. Like a knife that can chop vegetables or cut your hand. The tool itself isn’t the problem; the problem lies with the person.
Today’s article will help everyone understand this seemingly incomprehensible thing called options.
1. What are options?
In a nutshell:
Options are a way to spend a small amount of money to lock in the "right to buy or sell a stock at a future date."
It’s not an obligation—it’s a right. You can choose to exercise it or let it expire, but the money you paid is non-refundable.
For example, if you spend $300 to buy the right to "purchase TSLA for $100 within the next month,"
and a month later, TSLA rises to $120, you can buy it at a $20 discount and immediately profit.
That option then becomes valuable.
This is a call option (Call). You’re betting it will rise in the future.
Conversely, you can also buy a put option (Put), which gives you the right to "sell the stock at a higher price" in the future.
If the stock does fall, you can still sell at the higher price, effectively locking in profits.
This is the basic logic of options: using small amounts of money to bet on direction, but not blindly—it’s a calculated bet.
2. What are options used for?
Don’t be fooled by their complexity—options have significant practical uses. Many seasoned traders have dabbled in them or even rely on them:
1. Leveraging small capital for big opportunities
A few hundred dollars can amplify gains from price swings worth tens of thousands—this is the allure of options’ leverage.
Get it right, and the returns can be substantial.
2. Hedging risk
Got a pile of holdings and worried about a short-term drop? Buy a Put—it’s like buying insurance. If the market falls, the Put’s value rises to offset your losses.
3. Flexible position-building
Want to buy a stock but think it’s too expensive now? You can "sell a Put" at your desired entry price.
If the stock does drop to that level, you get to buy it cheaply and pocket the premium.
4. Profiting from volatility
When the market is range-bound but volatile, trading the underlying stock is tricky. Options let you "profit from volatility" via selling strategies.
3. How do options make or lose money?
This is crucial. Done well, options can double, even multiply returns by dozens or hundreds of times. Conversely, losses can be unlimited. Many people lose money simply because they don’t grasp this.
How to profit?
If the stock rises fast and far, the Call you bought will increase in value, letting you buy low and sell high.
Similarly, if you bet correctly on a drop with a Put, you can make big gains.
The key: You must be right about the direction, and it must happen before expiration.
How to lose money? Unlike stocks, options have an expiration date.
Right direction, but too late
Your Call or Put may turn to "worthless paper" if it doesn’t outperform expectations before expiration, even if the direction was correct, due to time decay.
For example, you buy a Call betting TSLA will hit $400 in a month, but it only reaches $390 on day 30—the contract might be nearly worthless.
If your Call or Put moves against your bet, you lose money.
Volatility drops, options fall
Sometimes, even if the stock moves as expected, you still lose money because the option’s IV is too low or too high.
Options have a "shelf life"—they expire worthless. Even if your prediction is right, if the move is too slow or late, it’s useless.
This is "time decay," the trickiest part of options. Time constantly erodes your profits.
4. How should beginners start with options?
In short: Start small, keep it simple, and begin as a buyer. Don’t aim too high or rush for quick wins. Even eating requires one bite at a time.
Specific advice:
First, learn to buy Calls and Puts. This is "being long options," with fixed risk (maximum loss: the premium paid), ideal for practice.
Don’t start as a seller. While selling has a higher win rate, losses can be catastrophic—it’s for advanced players.
Trade options on familiar stocks. Avoid obscure, low-liquidity stocks where slippage is high.
Control position size. Don’t start with thousands; practice with a few hundred dollars.
5. What to watch out for with options?
Options are volatile and risky. Avoid these pitfalls:
Don’t gamble on news
Earnings reports, sudden news, lawsuits—these are too risky for beginners.
Avoid near-expiration contracts
Newbies love cheap "last-minute" options, but they often expire worthless as time value vanishes.
Don’t go all-in on a directional bet
Options can lose money fast. Position control is critical—keep it under 5%-10% of your capital.
Understand volatility and volume
Higher volatility means pricier options. Low-volume options have wide bid-ask spreads, making them easy to "get eaten."
6. Who are options for? When to use them?
They suit these types of people:
Those with some trading experience and risk control
Those wanting to trade trends with small capital
Those using them for hedging, position-building, or collecting premiums
Beyond speculation, options can also serve as risk management tools or hedging tools. Use them in these situations::
When markets are range-bound but volatile → Trade intraday T+0 arbitrage, selling high-volatility Calls or Puts for premium income (seller strategies)
Around clear event-driven moments → Like earnings or policy expectations (but manage risk)
When holding large positions and fearing short-term drops → Buy a Put to "insure" your holdings (protective puts)
When you want to build a position but prefer a better entry→ Sell Puts to collect premiums; if the stock hits your target, you buy it automatically
Options offer many strategies, but the key is whether you see them as a "directional bet" or a "structural tool."
A final word of advice
Many have traded stocks for years without ever understanding options. Some newcomers, though, learn options early and build their own strategies. Others rush in, treating it like a casino. Options can make or break you. After years in the market, my biggest takeaway is:
Market rules and tools keep evolving, but one thing remains constant—the "knowledge gap.".
Options aren’t a guarantee of profits, but they give you more choices.
And in the markets, having choices is always better than having none.
You can profit without options, but understanding them opens up entirely new dimensions.
Others use them to position, arbitrage, or hedge—how can you play the game if you don’t even know the rules?
I hope this article helps you truly grasp options. I’ll also share practical strategies and techniques later.
May you understand, learn, and apply them well.
We’re not aiming to get rich overnight, but to know more and lose less.
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