Another quick thought -
Say you have a stock that went up from $30 to $45. You could have bought a $35 call option six months ago for $2.50. You made 50%, but you could have made 400%. Well, you're right, but you're taking on proportional risk to your investment by putting your money in a call option. Really it's similar to taking a loan for 3x your money and putting it all in one stock: with the loan, if it goes up 50%, you get 200% return. If it goes down 25%, you lose all your money. Beyond that you have to pay. With the option, if the stock stays below $35, you lose all your money. But you don't have to pay ever, which is a benefit over the leverage. The point being, options can be a good strategy if you find an arbitrage or a very cheap risk/reward profile. A lot of times traders use options as simulated leverage to maximize their risk and potential return. That is probably not the best use of the option strategy, and it can lead to heavy losses.
