Option Trading allows the trader to define risk:
Many people think option trading is more risky than stock trading. Although this is true, only with option trading can we define risk What does that mean to define risk? Defining risk means we know the profit and loss limits prior to the entering the trade. It means we can measure the trading performance. If we can measure the trading performance we can forecast the trade more accurately than a stock trade
But aren’t option trades still random profit and losses?
Not at all. Yes the market movements are often times random, but only with option trading can we take a methodical statistical approach to trading. Option contracts are valued based off of several complex statistical factors that boil the price down into a probability based value. This means a contract is valued based on its probability for success.