I worked with a company that dealt in a particular commodity. They had long-term contracts for manufacture and delivery, and the raw material would fluctuate in price.
So, for them, options were a perfect business-related solution. No problem with that activity on the balance sheet and P&L.
Of course, after a while, the buyers and execs started getting fancy and started getting options for more than they needed to hedge the production requirements.
All fun and games until the inevitable big loss came along.
Yes, the options for farmers for example actually helped both sides. The farmers protect themselves from downside risk e.g. glut in the supply that forced prices down while the buyers protect themselves from the opposite e.g. undersupply sending the price high. It was a cost of doing business and minimizing price volatility risk for both parties.
In the stock market, it functions as the same thing but has become an animal of its own for many reasons including the fact that there are market makers running the trading desks. Tesla investors famously used options to force the trading desks to hedge the options they sold by buying shares and forcing a short squeeze. Same thing happened with Gamestop and Bed Bath Beyond and a few others. And the allure of a naked option is the “unlimited” upside. If you got yourself a 10 cent option at a $25 strike for a $20 stock that suddenly landed a huge contract that sent the stock to $45 - that 10 cent option is now worth $20 (and since each option is worth 100 shares, your $10 investment is now worth $2,000). If you risked a few $100 like that you *could* make a huge fortune, but again you have to be exceedingly lucky.
The unfortunate thing is that it actually happens quite often - you hear about something like that every week. There are the famous “wallstreetbets” type groups - I kind of admire their gumption to be honest - that look for stocks that have massive short interests and then try to force a squeeze against the big money shorts. But none of that is investing, none of that is hedging. It is gambling and gamesmanship and brinksmanship.