Without the fear of heights, there can be no appreciation for the beauty of high places.

The doctor smiled tolerantly.“Don’t you get it? I’ve given my most profound love to an illusion!”“Are you under the impression that the object of everyone else’s love actually exists?”“Is that even a question?”

Does love actually exist?

“Sure. For the majority of people, what they love exists only in the imagination. The object of their love is not the man or woman of reality, but what he or she is like in their imagination. The person in reality is just a template used for the creation of this dream lover. Eventually, they find out the differences between their dream lover and the template. If they can get used to those differences, then they can be together. If not, they split up. It’s as simple as that. You differ from the majority in one respect: You didn’t need a template.”

What's love about

Time is the one thing that can’t be stopped. Like a sharp blade, it silently cuts through hard and soft, constantly advancing. Nothing is capable of jolting it even the slightest bit, but it changes everything.

How to stop time

Make time for civilization, for civilization won't make time.

The Great Ravine

“There are no homes now. No one has them. Marriage, family, they went away after the Great Ravine. That will be the first thing you’ll have to get used to.”“That first thing is something I won’t be able to get used to.”“Oh, I don’t know. In history class I learned that marriage and family had already begun to disintegrate in your own time. Lots of people didn’t want to be tied down. They wanted free lives.”

Life after the Great Ravine

Soon to be a Netflix Original Series! "Wildly imaginative." —President Barack Obama on The Three-Body Problem trilogy This near-future trilogy is the first chance for English-speaking readers to experience this multiple-award-winning phenomenon from Cixin Liu, China's most beloved science fiction author. In The Dark Forest, Earth is reeling from the revelation of a coming alien invasion-in just four centuries' time. The aliens' human collaborators may have been defeated, but the presence of the sophons, the subatomic particles that allow Trisolaris instant access to all human information, means that Earth's defense plans are totally exposed to the enemy. Only the human mind remains a secret. This is the motivation for the Wallfacer Project, a daring plan that grants four men enormous resources to design secret strategies, hidden through deceit and misdirection from Earth and Trisolaris alike. Three of the Wallfacers are influential statesmen and scientists, but the fourth is a total unknown. Luo Ji, an unambitious Chinese astronomer and sociologist, is baffled by his new status. All he knows is that he's the one Wallfacer that Trisolaris wants dead. The Three-Body Problem Series The Three-Body Problem The Dark Forest Death's End Other Books Ball Lightning Supernova Era To Hold Up The Sky (forthcoming) At the Publisher's request, this title is being sold without Digital Rights Management Software (DRM) applied.

Stand-alone stuff

The Dark Forest

The universe is a dark forest. Every civilization is an armed hunter stalking through the trees like a ghost, gently pushing aside branches that block the path and trying to tread without sound. Even breathing is done with care. The hunter has to be careful, because everywhere in the forest are stealthy hunters like him.

If he finds other life another hunter, an angel or a demon, a delicate infant or a tottering old man, a fairy or a demigod—there’s only one thing he can do: open fire and eliminate them. In this forest, hell is other people. An eternal threat that any life that exposes its own existence will be swiftly wiped out. This is the picture of cosmic civilization. It’s the explanation for the Fermi Paradox.

Soviet astrophysicist Nicolai Kardashev once proposed that we can divide civilizations into three types based on the power they can command for communication purposes, let's say.

Dividing civilizations

A Type I civilization can muster an amount of energy equivalent to the total energy output of the Earth. Based on his estimates, the energy output of the Earth is about 10^15 to 10^16 watts.A Type II civilization can marshal the energy equivalent to the output of a typical star - 10^26 watts.A Type III civilization's communication energy can reach 10^36 watts, approximately equal to the energy output of a galaxy. Civilization on Earth is currently about Type 0.7 not even a full Type I.

The Kardashev Scale

And to attain that state, you need to empty yourself.I said, "I'm empty enough. Fame and fortune are nothing to me. Many of the monks in this temple are worldlier than me." The abbot shook his head and said,"No, emptiness is not nothingness. Emptiness is a type of existence. You must use this existential emptiness to fill yourself."His words were very enlightening to me. Later, after I thought about it a bit, I realized that it wasn't Buddhist philosophy at all, but was more akin to some modern physics theories. The abbot also told me he would not discuss Buddhism with me.

Emptiness is not nothingness

Interesting that I’ve found this book as a side note in “The denial of death” by Ernest Becker. Didn’t expect something from it, and for sure didn’t expect it to grab my attention at all. Unquestionably an enthralling book, first of the “Remembrance of Earth’s past” trilogy. I would recommend it to anyone who dares to imagine beyond our existence.

Soon to be a Netflix Original Series! “War of the Worlds for the 21st century.” – Wall Street Journal The Three-Body Problem is the first chance for English-speaking readers to experience the Hugo Award-winning phenomenon from China's most beloved science fiction author, Liu Cixin. Set against the backdrop of China's Cultural Revolution, a secret military project sends signals into space to establish contact with aliens. An alien civilization on the brink of destruction captures the signal and plans to invade Earth. Meanwhile, on Earth, different camps start forming, planning to either welcome the superior beings and help them take over a world seen as corrupt, or to fight against the invasion. The result is a science fiction masterpiece of enormous scope and vision. The Three-Body Problem Series The Three-Body Problem The Dark Forest Death's End Other Books Ball Lightning Supernova Era To Hold Up The Sky (forthcoming) At the Publisher's request, this title is being sold without Digital Rights Management Software (DRM) applied.

Books

The Three-Body Problem

We all get anxious, it’s a part of life, yet how we deal with it is critical. If we don’t know how anxiety shows up or why, we might get caught up in temporary distractions or short-term fixes that actually feed it, creating bad habits in the process (have you ever eaten ice cream or cookies when you’re stressed?). Or we might spend our whole lives adding to our anxiety by trying to cure it (why can’t I just find why I’m anxious and fix it?).

Anxiety hides in people’s habits

The anxiety and its close cousin, panic, are both born from fear. It's well known that fear’s main evolutionary function is helping us survive. Fear is the oldest survival mechanism we’ve got. Fear teaches us to avoid dangerous situations in the future through a brain process called negative reinforcement. Evolution made this really simple for us, we need only three elements in situations like this to learn: <ul><li>an environmental cue</li><li>a behavior</li><li>and a result</li></ul>

Anxiety and its close cousin

Sometime in the last million years, humans evolved a new layer on top of our more primitive survival brain; neuroscientists call this the prefrontal cortex (PFC).  From an anatomical perspective, this “newer” brain region is located just behind our eyes and forehead. Involved in creativity and planning, the PFC helps us to think and plan for the future. The PFC predicts what will happen in the future based on our past experience. Yet critically, the PFC needs accurate information to make accurate predictions.

The prefrontal cortex

If information is lacking, our PFC plays out different versions of what might happen to help us choose the best path forward.  It does this by running simulations based on previous events in our lives that are most similar. For example, trucks and buses are similar enough to cars that we can safely assume we should look both ways to avoid any fast-moving vehicle.

The lack of information 

Anxiety is born when our PFCs don’t have enough information to accurately predict the future Without accurate information, our brains found it easy to spin stories of fear and dread, based on the latest reports that we had heard or read. And because of the way our brains are wired, the more shocking the news, increasing our sense of danger and feelings of fear, the more likely our brains are to remember it. When we can’t control our anxiety, that emotional fever spikes into panic (defined online as “sudden uncontrollable fear or anxiety, often causing wildly unthinking behavior”).

Anxiety

We map out how the pieces fit together and drive one another. Sometimes simply becoming aware of the habit patterns helps us step out of them, with significant results. At other times, we need a little hand-holding along the way. How often have you struggled to force yourself to overcome old habit loops and failed? How can you fix something if you don’t know how it works? Mapping out habit loops is an obvious place to start. This mapping effort is defined as the first gear.

Mapping a habit

In neuroscience, the default mode network (DMN), or anatomically the medial fronto-parietal network (M-FPN), is a large-scale brain network primarily composed of the medial prefrontal cortex and the posterior cingulate cortex and angular gyrus. The DMN was discovered by Marcus Raichle and his crew at Washington University in St. Louis. It was called the default mode network because this is what our minds go to whenever they are not engaged in a specific task. The DMN gets activated when our mind is wandering, thinking about things in the past or future, caught in repetitive thought

The default mode network

A hub of the DMN called the posterior cingulate cortex (PCC) connects a bunch of other brain regions. The PCC is interesting because it gets activated when people are shown pictures that are reminders of or triggers for their addictions. For example, the PCC lights up with cocaine cues (e.g., a picture of a few lines of cocaine on a mirror) in cocaine-addicted individuals, with smoking cues (e.g., a picture of someone smoking) in nicotine-addicted individuals, and with gambling cues (e.g., a picture of someone playing roulette) in individuals addicted to gambling.

The posterior cingulate cortex

There are different types of people depending on how they react when facing danger. These people can be categorized into three different groups based on their reactions. These groups are fight, flight, and freeze.

When we face dangerous situations

You must let the pain visit.You must allow it to teach you.You must not allow it overstay.

Every time you pay attention to your actions, you become more aware of what you actually get from them.  If you notice that potato chips make you feel crappy when you eat too many, you get less excited about eating the whole bag next time. Not because you have to force yourself to not eat them, but simply because you remember what happened last time (and the time before that, and the time before that, and the time before that).  This also holds true for worry, procrastination, or any other anxiety habit loop that you’ve learned over the years.

Pay attention

The theory sounds—and is—simple. Yet this can easily fall into the thinking trap that was mentioned in the last chapter: you can know that something is bad for you, but thinking doesn’t change behaviors on its own. It isn’t strong enough. Watch your thoughts. They become words. Watch your words. They become actions. Watch your actions. They become habits. Watch your habits. They become character. Watch your character. It becomes your destiny.

The thinking trap

Worrying does not take away tomorrow’s troubles. It takes away today’s peace.

The instant New York Times bestseller A step-by-step plan clinically proven to break the cycle of worry and fear that drives anxiety and addictive habits We are living through one of the most anxious periods any of us can remember. Whether facing issues as public as a pandemic or as personal as having kids at home and fighting the urge to reach for the wine bottle every night, we are feeling overwhelmed and out of control. But in this timely book, Judson Brewer explains how to uproot anxiety at its source using brain-based techniques and small hacks accessible to anyone. We think of anxiety as everything from mild unease to full-blown panic. But it's also what drives the addictive behaviors and bad habits we use to cope (e.g. stress eating, procrastination, doom scrolling and social media). Plus, anxiety lives in a part of the brain that resists rational thought. So we get stuck in anxiety habit loops that we can't think our way out of or use willpower to overcome. Dr. Brewer teaches us to map our brains to discover our triggers, defuse them with the simple but powerful practice of curiosity, and to train our brains using mindfulness and other practices that his lab has proven can work. Distilling more than 20 years of research and hands-on work with thousands of patients, including Olympic athletes and coaches, and leaders in government and business, Dr. Brewer has created a clear, solution-oriented program that anyone can use to feel better - no matter how anxious they feel.

Unwinding Anxiety

This is called the 40% rule, and the reason it’s so powerful. If you follow it, you will unlock your mind to new levels of performance and excellence in sports and in life, and your rewards will run far deeper than mere material success.

The 40% rule

Sadly, most of us give up when we’ve only given around 40 percent of our maximum effort. Even when we feel like we’ve reached our absolute limit, we still have 60 percent more to give! That’s the governor in action! Once you know that to be true, it’s simply a matter of stretching your pain tolerance, letting go of your identity and all your self-limiting stories, so you can get to 60 percent, then 80 percent and beyond without giving up.

When you feel like giving up

New York Times Bestseller Over 2.5 million copies sold For David Goggins, childhood was a nightmare - poverty, prejudice, and physical abuse colored his days and haunted his nights. But through self-discipline, mental toughness, and hard work, Goggins transformed himself from a depressed, overweight young man with no future into a U.S. Armed Forces icon and one of the world's top endurance athletes. The only man in history to complete elite training as a Navy SEAL, Army Ranger, and Air Force Tactical Air Controller, he went on to set records in numerous endurance events, inspiring Outside magazine to name him The Fittest (Real) Man in America. In this curse-word-free edition of Can't Hurt Me, he shares his astonishing life story and reveals that most of us tap into only 40% of our capabilities. Goggins calls this The 40% Rule, and his story illuminates a path that anyone can follow to push past pain, demolish fear, and reach their full potential.

Investing

Can't Hurt Me

<ul><li>There are two realms: JS and Native which are not really aware of each other and do not share the same memory</li><li>The communication is async through the bridge between the two realms</li><li>It is slow to transfer large chunks of data. Since the memory is not shared, all the data passed between js and native is a new copy</li><li>No way to update the UI in a sync way. </li><li>The library repo is HUGE. It makes the library heavier and also making it slower to contribute code from outside or release new fixes</li></ul>

Some of the main disadvantages of the current structure

Don’t get them wrong, Facebook is using React Native by themselves for the Marketplace app, Ads app and more which servers millions of daily users. In addition, some well-known companies like Wix, Bloomberg, Tesla, Zynga and much more using RN in production with the current architecture. But all of the above companies and especially Facebook got to a point where they understood that if they want to make a better native experience and better developer experience they have to do a huge move and change and this is exactly what they are in a process of doing (part of it is already completed)

The current Arhitecture

Now, let’s explain about all the new words you see here: JSI, Fabric, Turbo ModulesJSI is gonna replace the BridgeJSI (Will replace the Bridge) — Its purpose is to make the JS and Native are aware of each other. There won’t be any need to serialize JSON through the bridge and even more than that — there won’t be a bridge! It will allow to expose native object as js objects and vice-versa. It will also expose an API for synchronous calling on this object on both sides. Actually, all the rest of the architecture will be built on top of that (Fabric, Turbo Modules which will be explained next).

The New Arhitecture

Fabric — the new name for the UIManager which will be responsible for the native side. The biggest difference now that instead of communicating the JS side by the bridge, it will expose its native function using the JSI so the JS side and vice-versa can communication directly those ref functions. Better and efficient performance and passing data between sides.

Fabric

Remember the native modules from the last post? Text, Image, View. So their new name is Turbo Modules. They have the same purpose but implemented and acting differently. First, they are lazy-loaded (only when the app needs them) comparing to loading all of them on the launch time. In addition, they are also exposed using the JSI so JS holds a ref to use them on the React Native JS lib side. Result => better performance especially on launch time.

Turbo Modules

CodeGen — Suppose to make the JS side a Single Source Of Truth. Can let you create static types of the js so the native side (Fabric and Turbo Modules) will be aware to them and avoid validating the data each time => better performance and less place for mistakes when passing data.Lean Core — A change in React native repository structure. The purpose is to make the lib lighter and help the community resolve more pull requests faster than before. Facebook splits some of its parts to an external repo. It is already a process in progress that you can follow in their Github here.

CodeGen & Lean Core

We now go over the flow from the previous post and will show the differences. There isn’t a bridge anymore<ol><li>User clicks on the app icon</li><li>Fabric loads the native side (no native modules)</li><li>It tells the JS thread that it is ready and now the JS side loads all the main.bundle.js which contains all js and react logic + components</li><li>JS called through the ref native function (the one that was exposed as an object using the JSI API) to Fabric and the shadow node creates the tree as before</li><li>Yoga does the layout calculation converting from flexbox-based style to host layout</li><li>Fabric does its thing and shows the UI </li></ol>

The new flow

We discussed the current structure until now and it is time to talk about the stuff that was not the perfect choice, looking backward as React team leader on Facebook at this time mentioned in her…

Mobile

React Native — A Bridge To Fabric 

His mission was destined to yield great wealth to many people. It was destined to bring to the South the most far-flung benefit since the Civil War. For more than an hour, behind the prescription counter, the old doctor and the clerk talked in low tones. Then the doctor left. He went out to the buggy and brought back a large, old fashioned kettle, a big wooden paddle (used for stirring the contents of the kettle), and deposited them in the back of the store.

50 years ago, an old country doctor drove to town, hitched his horse, quietly slipped into a drug store by the back door, and began “dickering” with the young drug clerk.

The old doctor was glad to sell the outfit for five hundred dollars. The money would pay off his debts, and give him freedom of mind. The clerk was taking a big chance by staking his entire life’s savings on a mere scrap of paper and an old kettle! He never dreamed his investment would start a kettle to overflowing with gold that would surpass the miraculous performance of Aladdin’s lamp.What the clerk really purchased was an idea ! The old kettle and the wooden paddle, and the secret message on a slip of paper were incidental.

Read this story carefully, give your imagination a test! See if you can discover what it was that the young man added to the secret message, which caused the kettle to overflow with gold. Remember, as you read, that this is not a story from Arabian Nights. Here you have a story of facts, stranger than fiction, facts which began in the form of an idea . Let us take a look at the vast fortunes of gold this idea has produced. It has paid, and still pays huge fortunes to men and women all over the world, who distribute the contents of the kettle to millions of people.

The kettle overflowed with “gold”

The Old Kettle has converted a small Southern city into the business capital of the South, where it now benefits, directly, or indirectly, every business and practically every resident of the city. The influence of this idea now benefits every civilized country in the world, pouring out a continuous stream of gold to all who touch it. Gold from the kettle built and maintains one of the most prominent colleges of the South, where thousands of young people receive the training essential for success.

Whoever you are, wherever you may live, whatever occupation you may be engaged in, just remember in the future, every time you see the words “<a href="http://clickamericana.com/tag/coca-cola">Coca-Cola </a>,” that its vast empire of wealth and influence grew out of a single idea , and that the mysterious ingredient the drug clerk — Asa Candler — mixed with the secret formula was… imagination ! Truly, thoughts are things, and their scope of operation is the world, itself.

A world-famous success

The clerk inspected the kettle, reached into his inside pocket, took out a roll of bills, and handed it over to the doctor. The roll contained exactly $500 — the clerk’s entire savings! The doctor handed over a small slip of paper on which was written a secret formula. The words on that small slip of paper were worth a King’s ransom! But not to the doctor! Those magic words were needed to start the kettle to boiling, but neither the doctor nor the young clerk knew what fabulous fortunes were destined to flow from that kettle.

Rocking it

The Enchanted Kettle, aka the legend of Coca-Cola

An inverse ETF is an <a href="https://www.investopedia.com/terms/e/etf.asp">exchange traded fund (ETF) </a>constructed by using various <a href="https://www.investopedia.com/terms/d/derivative.asp">derivatives </a>to profit from a decline in the value of an underlying benchmark. Investing in inverse ETFs is similar to holding various short positions, which involve borrowing securities and selling them with the hope of repurchasing them at a lower price. An inverse ETF is also known as a "Short ETF" or "Bear ETF."

What Is an Inverse ETF?

<ul><li>An inverse ETF is an exchange traded fund (ETF) constructed by using various derivatives to profit from a decline in the value of an underlying benchmark. </li><li>Inverse ETFs allow investors to make money when the market or the underlying index declines, but without having to sell anything short. </li><li>Higher fees tend to correspond with inverse ETFs versus traditional ETFs. </li> </ul>

Key Takeaways

Many inverse ETFs utilize daily futures contracts to produce their returns. A <a href="https://www.investopedia.com/terms/f/futurescontract.asp">futures contract </a>is a contract to buy or sell an asset or security at a set time and price. Futures allow investors to make a bet on the direction of a securities price. Inverse ETFs' use of derivatives—like futures contracts—allows investors to make a bet that the market will decline. If the market falls, the inverse ETF rises by roughly the same percentage minus fees and commissions from the broker.

Understanding Inverse ETFs

An advantage of inverse ETFs is that they do not require the investor to hold a <a href="https://www.investopedia.com/terms/m/marginaccount.asp">margin account </a>as would be the case for investors looking to enter into <a href="https://www.investopedia.com/terms/s/short.asp">short positions </a>. A margin account is one where a broker lends money to an investor to trade. Margin is used with shorting—an advanced trading activity.Investors who enter into short positions borrow the securities—they don't own them—so that they can sell them to other traders. The goal is to buy the asset back at a lower price and unwind the trade by returning the shares to the margin lender.

Inverse ETFs vs. Short Selling

An inverse ETF is an exchange-traded fund that uses various derivatives to profit from a decline in the value of an underlying benchmark.

Exploring the Benefits and Risks of Inverse ETFs

I’ve seen a lot of bubbles in my time and I have studied even more in history, so I know what I mean by a bubble and I systemized it into a “bubble indicator﻿” that I monitor to help give me perspective on each market. We now use it to look at most markets we are in. I want to show you how it works and what it is now showing for US stocks.

These are the six factors that Ray Dalio analyses when it comes to a bubble in the stock market:<ol><li>How high are prices relative to traditional measures?</li><li>Are prices discounting unsustainable conditions?</li><li>How many new buyers (i.e., those who weren’t previously in the market) have entered the market?</li><li>How broadly bullish is sentiment?</li><li>Are purchases being financed by high leverage?</li><li>Have buyers made exceptionally extended forward purchases (e.g., built inventory, contracted forward purchases, etc.) to speculate or protect themselves against future price gains?</li></ol>

Each of these six influences is measured using a number of stats that are combined into gauges. In the stock market we do it for each stock that we are looking at. These gauges are combined into aggregate indices by security and then for the market as a whole. The table below shows the current readings of each of these gauges for the US equity market as a whole, and the chart below it shows the aggregate reading derived by combining these gauges into one reading for the stock market going back to 1910. It shows how the conditions stack up today for US equities in relation to past times.

Ray Dalio: The 6 Measures Of My Systemized “Bubble Indicator”

<h2>﻿Millions of people look at the achievements of [world-changing automaker] Henry Ford, after he has arrived, and envy him, because of his good fortune, or luck, or genius, or whatever it is that they credit for Ford’s fortune.</h2><h2> </h2>

The secret of success

Perhaps one person in every hundred thousand knows the secret of Ford’s success, and those who do know are too modest, or too reluctant, to speak of it, because of its simplicity. A single transaction will illustrate the “secret” perfectly.

Do you know the secret?

A few years back, Ford decided to produce his now famous V-8 motor. He chose to build an engine with the entire eight cylinders cast in one block, and instructed his engineers to produce a design for the engine.The design was placed on paper, but the engineers agreed, to a man, that it was simply impossible to cast an eight-cylinder gas engine block in one piece.

It’s all about determination

Ford said, “Produce it anyway.”“But,” they replied, “it’s impossible!”“Go ahead,” Ford commanded, “and stay on the job until you succeed no matter how much time is required.”The engineers went ahead. There was nothing else for them to do, if they were to remain on the Ford staff.Six months went by, nothing happened. Another six months passed, and still nothing happened. The engineers tried every conceivable plan to carry out the orders, but the thing seemed out of the question; “Impossible!”

And belief

At the end of the year, Ford checked with his engineers, and again they informed him they had found no way to carry out his orders. Go right ahead,” said Ford, “I want it, and I’ll have it.” They went ahead, and then, as if by a stroke of magic, the secret was discovered.The Ford determination had won once more!

To have what you want

Ever wondered how life would be if we could condition our minds to Think and Grow Rich? Author Napoleon Hill claims to have based this book on twenty years of rigorous research on the lives of those who had amassed great wealth and made a fortune. Observing their habits, their ways of working and the principles they followed, Hill put together laws and philosophies that can be practiced in everyday life to achieve all-round success. The narrative is rich with stories and anecdotes, which not only inspire, but also show a way forward to take action. After all, riches are not just material, but also pertaining to the mind, body and spirit. Having sold more than fifteen million copies across the world, this book remains the most read self-improvement book of all times!

Think and Grow Rich

Options are conditional <a href="https://www.investopedia.com/terms/d/derivative.asp">derivative</a> contracts that allow buyers of the contracts (option holders) to buy or sell a security at a chosen price. Option buyers are charged an amount called a "premium" by the sellers for such a right. Should market prices be unfavorable for option holders, they will let the option expire worthless, thus ensuring the losses are not higher than the premium. In contrast, option sellers (option writers) assume greater risk than the option buyers, which is why they demand this premium.

Definition and application

Options are divided into "call" and "put" options. With a <a href="https://www.investopedia.com/terms/c/calloption.asp">call option</a>, the buyer of the contract purchases the right to buy the underlying asset in the future at a predetermined price, called <a href="https://www.investopedia.com/terms/e/exerciseprice.asp">exercise price</a> or <a href="https://www.investopedia.com/terms/s/strikeprice.asp">strike price</a>. With a <a href="https://www.investopedia.com/terms/p/putoption.asp">put option</a>, the buyer acquires the right to sell the underlying asset in the future at the predetermined price.

Forms of trading

There are some advantages to trading options. The Chicago Board of Options Exchange (CBOE) is the largest such exchange in the world, offering options on a wide variety of single stocks, ETFs and indexes.1Traders can construct option strategies ranging from buying or selling a single option to very complex ones that involve multiple simultaneous option positions.

Why Trade Options Rather Than a Direct Asset?

Suppose a trader wants to invest $5,000 in Apple (<a href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=aapl">AAPL</a>), trading around $165 per share. With this amount, they can purchase 30 shares for $4,950. Suppose then that the price of the stock increases by 10% to $181.50 over the next month. Ignoring any brokerage, commission or transaction fees, the trader’s portfolio will rise to $5,445, leaving the trader with a net dollar return of $495, or 10% on the capital invested.

Buying Calls (Long Call)

Now, let's say a call option on the stock with a strike price of $165 that expires about a month from now costs $5.50 per share or $550 per contract. Given the trader's available investment budget, they can buy nine options for a cost of $4,950. Because the option contract controls 100 shares, the trader is effectively making a deal on 900 shares. If the stock price increases 10% to $181.50 at expiration, the option will expire <a href="https://www.investopedia.com/terms/i/inthemoney.asp">in the money</a> and be worth $16.50 per share ($181.50-$165 strike), or $14,850 on 900 shares.

That's a net dollar return of $9,990, or 200% on the capital invested, a much larger return compared to trading the underlying asset directly. (For related reading, see "Should an Investor Hold or Exercise an Option?")Risk/Reward: The trader's potential loss from a long call is limited to the premium paid. Potential profit is unlimited, as the option payoff will increase along with the underlying asset price until expiration, and there is theoretically no limit to how high it can go.

A put option works the exact opposite way a call option does, with the put option gaining value as the price of the underlying decreases. While short-selling also allows a trader to profit from falling prices, the risk with a short position is unlimited, as there is theoretically no limit on how high a price can rise. If the underlying rises past the option's strike price, the option will simply expire worthlessly.Risk/Reward: Potential loss is limited to the premium paid for the options. The maximum profit from the position is capped since the underlying price cannot drop below zero.

Buying Puts (Long Put)

A covered call strategy involves buying 100 shares of the underlying asset and selling a call option against those shares. When the trader sells the call, the option's premium is collected, thus lowering the <a href="https://www.investopedia.com/terms/c/costbasis.asp">cost basis</a> on the shares and providing some downside protection. In return, by selling the option, the trader is agreeing to sell shares of the underlying at the option's strike price, thereby capping the trader's upside potential.

Covered Call

Suppose a trader buys 1,000 shares of BP (<a href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=bp">BP</a>) at $44 per share and simultaneously writes 10 call options (one contract for every 100 shares) with a strike price of $46 expiring in one month, at a cost of $0.25 per share, or $25 per contract and $250 total for the 10 contracts. The $0.25 premium reduces the cost basis on the shares to $43.75, so any drop in the underlying down to this point will be offset by the premium received from the option position, thus offering limited downside protection.

If the share price rises above $46 before expiration, the short call option will be exercised (or "called away"), meaning the trader will have to deliver the stock at the option's strike price. In this case, the trader will make a profit of $2.25 per share ($46 strike price - $43.75 cost basis).

However, this example implies the trader does not expect BP to move above $46 or significantly below $44 over the next month. As long as the shares do not rise above $46 and get called away before the options expire, the trader will keep the premium free and clear and can continue selling calls against the shares if desired.

Risk/Reward: If the share price rises above the strike price before expiration, the short call option can be exercised and the trader will have to deliver shares of the underlying at the option's strike price, even if it is below the market price. In exchange for this risk, a covered call strategy provides limited downside protection in the form of premium received when selling the call option.

Options offer alternative strategies for investors to profit from trading underlying securities. Learn about the four basic option strategies for beginners.

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