Let's say I sell you a contract that gives you the right to buy a pizza next month at $10. I charge you 50 cents for this contract.

What I'm hoping is that when next month rolls around, the price of pizza will have fallen or stayed the same and whether or not you exercise that option I will be up 50 cents. (Pizza will need to cost over $10.50 before you begin gaining profit and I begin losing)

But what if the price of pizza explodes to $50 next month?! In that case you would probably want to exercise the contract. Now I have to go on the open market and buy a $50 pizza that I'd sell to you for $9, not a good deal!

This ignores a lot of stuff but is the very basic premise and you can also see why someone's risk is theoretically unlimited (how high can the price of pizza go?)

Now repeat this hundred or thousands of times, it starts to add up.