5.4  Options Strategies

You may ask yourself: why acquire an option rather than buy or sell a stock outright? The answer is simple: leverage.

Leverage is the use of debt to finance an activity. You use leverage when you borrow money from a bank to purchase a mortgage on a house. You use leverage when you borrow from a broker to buy securities on margin. Leverage allows you to acquire assets at a fraction of their cost, freeing up the balance of your assets for other activities, such as feeding your family or making additional investments.

Options provide a unique source of leverage because you do not need to