All termsOptions StrategiesStart here
Undefined Risk
Undefined risk describes a position whose maximum potential loss is not capped at a predetermined amount by the option structure itself.
Why it matters to you
Certain short option positions can create very large losses. An uncovered short call is the clearest example because the underlying price can theoretically continue rising without a fixed upper limit. Undefined risk does not mean the loss is unknowable at every price. It means the strategy does not contain a fixed maximum loss within its structure.