Risk is relative to your strategy.
For example, stock options are a very risky trading vehicle. Of that, there is no doubt. Time limited, price limited assets that are highly volatile.
Yet even though their nature is higher risk, their application may induce lower risk if strategically applied.
Every asset carries with it different types of associated risks. We choose the risks when we convert from currencies to cars to land and precious metals and more.
What risks do you find acceptable?
We are playing a game of balancing the many different categories of risks that affect our daily life. The goal is to mitigate the risks likely to cause more impactful damage.
Options are less frequented by traders, than stocks, and as such, the argument can be made that they are more often priced incorrectly. This allows for greater arbitrage to occur.
Options allow small portfolio traders to:
Gain possession of an asset OR trade its perceived value.
Pursue higher potential than stocks
Enter trades with smaller sums of money than stocks often require (diversify more effectively into assets with greater fundamental value)
Quickly find deals that aren't priced in
While options may not be the trading vehicle for everyone, vehicles with higher risk can have lower risk-reward ratios (lower risk for higher reward).
If the reward is greater per the "unit" of risk, the vehicle doesn't matter so much. I am focusing on increasing the impact of each risk "unit".
Different types of risks, when combined with mitigating factors, can be adjusted to have a lower net impact.
We can select higher-risk assets based on their potential (both fundamental and perceived), and then mitigate until we are satisfied, to maximize the impact of our investing.
Selecting for lower risk-reward ratios and then layering risk mitigation can completely change the trajectory of our investing.
Every now and then I like to ask myself a few questions in review:
What investment vehicles do I use and why?
What else could I be using, that I'm currently not?
Am I maximizing my portfolio's use of investment vehicles?