In stock markets, many are familiar with options, contracts that give their owner the option to buy or sell a stock at a certain price. Frequently, this buying or selling price is at a level which would not earn a profit (and would actually earn a loss) if the option were exercised immediately. Yet these 'out of the money' options still trade with a positive value in the market place, because traders are aware that simply having the option to buy or sell a stock at a fixed price has value. A stock price could, after all, change dramatically, suddenly making a previously 'out of the money' option very profitable since it allows you to buy a stock at a price well below the market rate, or sell it at a price well above the market.
Yet, optionality is not confined to financial markets. The worth we can see in the options market is actually a reflection of value that exists in our everyday world.
That is because we appreciate options in our daily life. For example, if someone offers you the opportunity to sell his or her products, that exercise might provide benefits in the future, even if you cannot find customers in the near-term. Maybe you will stumble upon potential matching customers, and then bang, you have something to sell them. There's also optionality in dating or a job search – you will be far more confident talking to three people than to one.
There are a multitude of options literally sitting in front of us, which we routinely ignore, despite the fact that they are frequently free for us to grab. Options traders are jealous, since they have to pay something for even the most remote stock option.
So look around. There are opportunities to pick up options everywhere, many free to own and lying in plain sight. That is because few realize that there is real financial value to optionality.
We once spoke with a small brokerage company who owned a large office building. One of the directors explained how when he first rented his office space in the building, he also asked for a clause that allowed him the option to buy the entire building at a price well above the current market price. The owners obliged rather easily, figuring that, heck, they will make out like bandits even if the guy uses his option. A few years later, property prices sky-rocketed, and an option, picked up as an after-thought to negotiations, ended up being a huge money maker.