Options are one of the most versatile trading tools available. A trader can use an option in order to limit risk on speculative investments. An option can also be used as a hedge against a declining stock market to limit downside losses. Though trading options can be extremely profitable, a trader must understand that they involve risks and are therefore not suitable for everyone. Understanding how options work and how to utilize them can allow you as a trader understand the working of the market better and therefore have a much higher chance of being a successful trader.