Long Leg

AAA

DEFINITION of 'Long Leg'

The part of an option spread strategy that involves buying an option on the underlying asset. A basic option spread strategy involves the purchase and simultaneous sale of an option (a put or call) on an asset such as a stock. Since the purchase of a put or call in such a spread amounts to "going long" on the option, it is called the long leg of the spread. Similarly, as the sale of a put or call in such a spread amounts to "going short" on the option, it is called the short leg of the spread.

INVESTOPEDIA EXPLAINS 'Long Leg'

For example, consider a bull call spread on a stock trading at $25. This spread would involve buying a call option at a strike price of say $26, and the simultaneous sale of a call option at a higher strike price, say $27. Both options would have the same expiration date. In this case, the $26 call constitutes the long leg of the spread, while the $27 call makes up the short leg.



RELATED TERMS
  1. Short Leg

    Any contract in an option spread in which an individual holds ...
  2. Buy A Spread

    Option strategy that will be profitable if the underlying security ...
  3. Vertical Spread

    An options trading strategy with which a trader makes a simultaneous ...
  4. Strike Price

    The price at which a specific derivative contract can be exercised. ...
  5. Spread Option

    A type of option that derives its value from the difference between ...
  6. Bull Call Spread

    An options strategy that involves purchasing call options at ...
Related Articles
  1. Bear Put Spreads: A Roaring Alternative ...
    Options & Futures

    Bear Put Spreads: A Roaring Alternative ...

  2. Practical And Affordable Hedging Strategies
    Options & Futures

    Practical And Affordable Hedging Strategies

  3. How To Manage Bull Put Option Spreads
    Options & Futures

    How To Manage Bull Put Option Spreads

  4. Profit From Earnings Surprises With ...
    Options & Futures

    Profit From Earnings Surprises With ...

comments powered by Disqus
Hot Definitions
  1. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  2. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  3. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  4. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  5. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  6. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
Trading Center