Exam 2016-FRR Topic 1 Question 244 Discussion

To establish a leveraged position using exchange-traded options, a trader would benefit from attributes that increase exposure while minimizing initial cash outlay.
* Higher degrees of exposure at less cash cost: Options provide significant leverage because they allow traders to control large positions with a relatively small amount of capital. This leverage is achieved through the options' pricing mechanism, where the premium paid is significantly less than the actual value of the underlying asset.
* Unlimited losses for long option positions: This is not an advantage for establishing a leveraged position. In fact, long option positions have limited losses, confined to the premium paid.
* Option positions have the same credit risks as a margined long forward: This is incorrect. Options have different risk profiles compared to margined long forwards, primarily because options confer the right but not the obligation to execute the contract.
* Option positions have the same cash risks as a margined short futures purchase: This is incorrect.
Options and futures have different risk and margin requirements, and they do not expose traders to the same cash risks.
Thus, the most advantageous attribute for a trader using exchange-traded options to establish a leveraged position is the higher degrees of exposure at less cash cost.
References
Source: How Finance Works