Loss limit
Definition · Level 3 · Spreads & short options
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An exit level fixed before the trade, often 1 to 2 times the credit received: when the spread would cost that much more to buy back than you were paid, you close it.
Example
Credit 1.30 and a 2× limit → buy it back at 3.90.
Where Tradecraft teaches it
Level 3 · Spreads & short options, in the lesson “Managing winners and losers”: When to take profit, how to set a loss limit, and why 21 days to expiration is a decision point.
Related terms
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