Chapter 06 · Section 6.1

Speculation and Leverage

While options can be used as a risk management tool, they may also be used by profit - seeking investors. These investors, commonly called speculators, serve an important purpose in the market as they are willing to take on the risk that the hedger seeks to avoid.

The variety of options strategies provides speculators with an opportunity to pursue a profit objective that takes his market outlook and risk tolerance into consideration.

This chapter contains a detailed discussion of the 19 most commonly used options strategies. The following explanations relate to ways of analyzing the risk and the profit potential associated with various option positions.