What is the purpose of options trading?

People trade options for three reasons:

1. Hedging: options can serve as a "hedge" or a form of insurance to minimize the risk of sudden market changes.

2. Speculation: Similar to stocks, options can also be used for speculative purposes. You can make a bet on how a stock will perform over time and then buy an options contract that reflects that assessment.

3. Profit: Some traders also use options for general profit-making. That is, options can play a role in their larger investment strategies. Sellers can make a profit on the premiums they charge buyers.