Traders, in contrast to investors, are short-term market timers with little interest in owning the underlying stock, and they often use a high degree of leverage. Purchased options give traders the potential for considerable leverage with limited risk, the so-called "home run." But the risk is real. Options can lose 50% or more of their purchase price in a short time if the price of the underlying stock moves the wrong way. Also, out-of-the-money options expire worthless at expiration for a total loss of the price paid, plus commissions.
2. Investors who use options need a plan: Will a purchased option be exercised or sold if it is in-the-money at expiration? Covered writers must know whether or not they are willing to sell the underlying stock. If not, it is best to decide in advance at what price the call will be repurchased or rolled to