Options

Defined-Risk Strategy

A strategy with a known, calculable maximum loss from the moment it's constructed — often achieved by combining legs to cap what would otherwise be uncapped-style risk.

A defined-risk strategy has a known, calculable maximum loss from the moment it’s constructed — similar in spirit to buying a single Option, but often achieved by combining multiple legs specifically to cap what would otherwise be larger, uncapped-style risk, such as selling a naked option.

See how defined-risk strategies fit into the broader strategy toolkit in Introduction to Option Strategies: Why Combine Options?.