I had been wondering lately what the economic value that financial Options (Calls, Puts, American, Bermudan, etc) give to the economy is. In essence, what good do they give us, vs. simply trading the underlying stock (or any other asset)?
A first-principles justification for Options I feel is what I missed in class (or it was so obvious that I missed it).
Now, I understand that Options lower the risk of trading stocks (which is balanced by a lower possible profit), by ensuring that your loss never exceeds the price of the Option you paid if the stock's trajectory goes off into an unplanned direction. However, one could also similarly lower one's risk (and reward), by only trading tiny amounts of any one stock, so Options do not seem unique in this regard.
In essence, could someone explain to me what unique advantages Options have over any other financial instrument?