1) Derivatives allow you to tailor your risk to the precise component of the market that you have a view on. If you think the stock is going to have a large move (either up or down) in the short term, it's tough to express that view in the stock. If you buy stock, you lose money on a down move. If you sell short, you lose money on an up move. So, you can buy short-dated put and call options together (nicknamed a "straddle" if they have the same exercise price, and a "strangle" if the put exercise price is less than that of the call) and you capture not only your view on what the stock is going to do, but also the timeframe in which you expect that move to happen.
2) Options cost less than stock, so you can lever your position. Let's say a stock trades at 100 and you want to buy a hundred shares. Ignoring interest, that position costs you 10,000 dollars. If it rallies to 110, you make 1,000 dollars, or ten percent of your capital outlay. But if you buy a contract of 50-strike calls, you pay around 5,000. If the stock rallies to 110, you make 1,000 dollars again, but that is 20% of your capital outlay.
3) Derivatives have more factors involved in the valuation, which makes them complicated. This is a battleground where smart people who are willing to work hard can find inefficiencies and make money. Stocks have more people looking at them, and are more simple, so they may not offer the same opportunities for profit depending on your skillset.
4) Options serve a tax purpose. If you have a long stock position that you have held for six months and profited from, but the company has earnings and you don't want to risk losing money on a potentially bad quarter, you could sell your stock and pay short-term capital gains tax. Or, you could sell calls to buy puts and maintain your stock without having to pay tax on your stock gains yet. If the difference between long- and short-term capital gains tax is greater than the cost of the options you buy, then you could be saving money.
Amazing to me that the "why is the title gender normative" comment has gotten traction, but you've been downvoted. The internet is strange.
Options make certain things tradable that were not previously tradable. As you already say, given only the spot, you can basically trade delta - will it go up or down. With options, you can trade vol - will it move little or a lot. With a basket of options versus an option on a basket you can trade correlation - will things move together or not. With CDS you can trade credit (separately from interest) - will a firm go bust or not.
And creating these markets allows for more informed opinion on what's going on.
Having said that, I think derivatives are overrated and fulfil few socially useful functions, and those are often fulfilled by the simplest derivatives, not the complex stuff banks like to peddle (because their fees are higher, yet hidden).
I had a similar problem during an IPO lockup and couldn't sell when the stock was at a high point. If you buy protective puts (for the collar), it would reset the long term capital gains clock on your long position. I would love to be wrong so I can regret/cry about it!
Yes, this is true.
However, it doesn't force you to pay taxes at the higher rate, only to wait longer before the lower rate applies. Once you dispose of the put, the clock resets. But if you continue holding the stock for greater than a year, then the only issue is that your dividends may be taxed more.
On a large-cap name, one thing that some people do is to use a well-correlated index or competitor for the hedge.
In your lockup, I'm betting there were some restrictions on hedging anyway, which may have prevented you from buying puts at all.