Leg In or 'legging in' means initiating an Options Strategy involving a combination of Long or Short puts or calls by buying or selling each individual option contract (or multiple thereof).
Most Options brokerages provide platforms that allow traders to initiate an order for a given Options Strategy as a complete order. In this case, the broker will submit all of the different legs and the position will be initiated when all are filled.
If the Options Strategy is an obscure one, or the market is highly illiquid, the trader may prefer to Leg in instead. Another reason if the market is trending in a given direction would be obtain a more favourable price for either the Long or Short side (depending on the strategy used).
Legging in where a Short option is sold before a Long option is purchased back can be considered a potentially higher risk strategy since the trader has a naked Short with theoretically unlimited liability.
Contributed by: Ralph Windsor
Most Options brokerages provide platforms that allow traders to initiate an order for a given Options Strategy as a complete order. In this case, the broker will submit all of the different legs and the position will be initiated when all are filled.
If the Options Strategy is an obscure one, or the market is highly illiquid, the trader may prefer to Leg in instead. Another reason if the market is trending in a given direction would be obtain a more favourable price for either the Long or Short side (depending on the strategy used).
Legging in where a Short option is sold before a Long option is purchased back can be considered a potentially higher risk strategy since the trader has a naked Short with theoretically unlimited liability.
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