What is limited risk?
Limited risk is an investment strategy where the amount an investor could lose is capped. The limit is usually the amount invested initially.
Limited risk allows investors to better protect their investment because they're fully aware of the maximum potential loss.
Where have you heard about limited risk?
Limited risk options are popular in trading. Many investors use them to protect their portfolios against sharp price movements.
What you need to know about limited risk.
Similar to buying insurance, limited risk offers protection in case something goes wrong. It works by tracking the investment’s progress and then moving securities in the opposite direction. This protection is an example of hedging.
You can measure limited risk by using delta, a ratio that illustrates how much the price of an option is likely to move.