With options, it is possible to trade for profit in rising, falling, or even static markets. You can:

• speculate on price moves

Speculating on price moves in the underlying can be done with various levels of risk. Strategies to limit the downside are available – giving potentially unlimited upside and limited downside risk. At there most basic, these involve long positions in either calls or puts.

What is more, buying an option, through paying the seller the agreed "premium" gives you exposure to price movement in the underlying instrument at a fraction of the full purchase price of the underlying; so, for a given percentage change in the underlying price, the change in option price in percentage terms is much greater. In other words, you can enjoy the rewards – and run the risks – of being leveraged.

Of course, there are a great many more strategies than simply buying or selling calls or puts and option trading strategies can become extremely complicated, especially when you start combining options with underlying holdings, or options with other options. Before even considering embarking on such strategies you should seek professional advice.

• provide insurance against a fall in price of an asset

Options can be used as a form of insurance against a fall in the price of an asset. For example, buying a put option (the right to sell) gives you the option of selling the underlying which you are holding if the price falls to unacceptable levels. Again, the only price you pay for this insurance is the cost of the option, the premium.

• make short term adjustments to the composition of your portfolios exposure

If you are expecting a temporary fall in the value of holdings in a particular area of your portfolio, it may be time consuming and impractical to liquidate it, especially if it remains part of your long-term strategy. Option contracts are a quick way of adjusting exposure to a particular market, which combined with a position in the underlying can be used to adjust your portfolios overall mix.

• enhance portfolio returns

Equally, by selling options on underlying investments that are already held, and receiving a premium from the buyer, options can be used to enhance portfolio returns.