[PapaBear3625]

They used to be ways for investors to hedge their bets against a large gamble in a traditional stock purchase or commodity purchase. Figure it was like making two dates for a Saturday night in case one date fell through.

There seems to be a Financial Law on the Conservation of Risk. You cannot destroy risk, you can only shift it around.

[durasell]

You can mitigate risk and “counter-balancing it.” I have a friend in the candy business who regularly buys options on sugar. If the price of sugar goes up, then the increase is offset by the money he made on the options. If the price of sugar goes down, then the difference pays for the options. It’s a system that works reasonably well in a world where the price of commodities is always shifting.