Options & Their Role In Increasing Equilibrium

Explains stock options & their role in increasing stock market equilibrium.

Investors, both big and small, are attracted to stock options because of four factors — absolute risk, the ability to play both directions of a market, the opportunity to buy time, and very high leverage (Mackevich, 1984). While all are significant, the most important is leverage. For a small amount of money, stock options investors can control hundreds of shares of stock, and their profits are leveraged accordingly -as is their risk, of course. Yet, when the market is moving rapidly in either direction, such investors count their gains in thousands of percentage points.

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