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Defining Risk

Best Practices

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

With capital constraints, many traders prefer to define their risk. Taking a short put to a vertical or a strangle to an iron condor has several benefits including lower capital requirements, fixed maximum profit and loss, and an easily calculable probability of success.

As with undefined risk trades, we like to set clear profit targets. We try to manage vertical spreads and iron condors at 50% and iron flies at 25% max profit. Unlike undefined trades, we manage less aggressively for defined risk trades because of their defined loss.

Tune in as Tom and Tony expand on this!

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