An investment whose loss cannot exceed a specific amount, usually the amount...
The risk inherent in options contracts, which is much lower than that of a futures contract, which has unlimited risk. The maximum loss in buying a call option, for example, is the premium paid for the option.
A concept often used to describe the option buyer's position. Because the option buyer's loss can be no greater than the premium he pays for the option, his risk of loss is limited.
The risk of an investment that has a predetermined maximum downside potential, which is usually the initial amount invested.
When buying options contracts, the amount of the premium paid. For example, the buyer of a call option cannot lose more than the premium even if the underlying security does not rise during the option's life. A buyer of a put option also cannot lose more than the premium even if the underlying security does not drop. Naked (uncovered) put writers are limited to the strike price less the option premium received. Naked call writers have unlimited risk as the value of a security can infinitely increase. See: Call Option; Naked Option; Option Premium; Option Writer; Options; Put Option; Uncovered Option; Underlying Security
An investment where the possible loss cannot exceed a pre-determined amount. For option purchases, this amount is initial cost of options plus associated transaction fees.