If you're in the investing game for a big score, options are one of the high-stakes tables. Like all derivatives of other assets, they are naturally leveraged. You can win big and you can lose big.
Options, however, are also a powerful tool for hedging the risk of an investment portfolio. If you're worried about surging stock indices but unwilling to unload your investments, an option to sell the S&P 500 Index — or a huge range of other, more specific segments of the stock and bond markets — can cover some or all of your risk.
"If the market sells off, the value of the put option rises," said Brett Carson, director of research at registered investment advisor Carson Wealth Management. "We're not trying to time the market, but we use put options on the S&P 500 to reduce risk."