What Is a Multi-Leg Options Order?

A multi-leg options order is an order to simultaneously buy and sell options with more than one strike price, expiration date, or sensitivity to the underlying asset's price. Basically, a multi-leg options order refers to any trade that involves two or more options that is completed at once. Because the order includes a combination of different contracts, it differs from 澳洲幸运5开奖号码历史查询:legging into or out of a multi-leg strategy one by one.

Multi-leg options orders, such as spreads and butterflies, are often used to capture profits when pricing 澳洲幸运5开奖号码历史查询:volatility is expected but the direction and/or timing is u🤪nclear.

Understanding Multi-Leg Options Orders

A multi-leg options order is used to enter complex strategies at once, instead of placing individual orders for each option involved. This type of order is primarily used in multi-legged strategies such as a straddle, strangle, 澳洲幸运5开奖号码历史查询:ratio spread, and 澳洲幸运5开奖号码历史查询:butterfly. The commissions owed and margin requirements are typically ꦆless with some brokers when a multi-leg trade is executed as a unit rather than via🍃 several individual orders.

Multi-leg options orders are common now, especially with the advent of automated electronic trading platforms. Before their widespread adoption, a trader would have needed to create individual tickets for each leg ♚of the trade and then submit each of them t𝐆o the market.

A multi-leg option order submits both legs of the trade simultaneously, making execution much smoother for the options trader. Moreover, 🐻having both orders go in at the same time removes some of the latency risk and time lag of entering multiple option positions manually.

Examples of Multi-Leg Options Orders

Multi-leg options orders are more advanced than simply entering a put or a call on a stock you are making a 澳洲幸运5开奖号码历史查询:directional bet on.

A common multi-leg options order is a straddle where a trader buys both a put and a call at or near the current price. The straddle has two legs: the long call option and the long put option. This multi-leg order simply needs the 澳洲幸运5开奖号码历史查询:underlying asset to see enough price movement to create a profit—the direction of that price movement is irrelevꦛant as long as the magnitude is there.

A more nuanced multi-leg options order is a strangle where there is a direction favored by the trade, along with less pro♍tection against the opposite move. Depending on the trading platform, investors can state their trading idea and a multi-leg order will be suggested to capitalize on that idea.

Multi-Leg Options Orders and Trade Cost Savings

A multi-leg option order may also make it easier to plan for the cost of the trade's 澳洲幸运5开奖号码历史查询:bid-ask spread costs. For example, one multi-leg order can be used to buy a call option with a 澳洲幸运5开奖号码历史查询:strike price of $35, and a put option with a strike price o൩f $35 and the same expiration date as the call to construct a straddle strategy.

Assume that the costs of the trade are a combined bid-ask spread of $0.07, and a commission of $7.00 plus $.50 per contract, for a total of $8.07. Contrast the multi-leg order with entering the trade for the same call and put in separate orde🔜rs, each of which has a bid-ask spread of $0.05 and a $7.00 plus $0.50 per-contract commission, for a total of $15.10.

The Bottom Line

Traders can use multi-leg options orders to carry out a complex options strategy involving several contracts in a single order, saving time and often money. This can be a helpful strategy when there is greater uncertainty in thꩲe trend direction.