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Benefiting from Defined Risk

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

Defined risk trades offer a variety of benefits including lower capital requirements, fixed maximum profit and losses, and an easily calculated probability of success. This piece outlines a few of the core mechanics for trading defined risk strategies including example buying power effects, target entry credits, and how to manage.

Even if you primarily trade undefined strategies like strangles and naked puts, consider implementing some defined risk strategies such as credit spreads, iron condors, and iron flies to take advantage of lower capital requirements, fixed maximum profit and losses, and an easily calculated probability of success.

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