Short Leg


DEFINITION of 'Short Leg'

Any contract in an option spread in which an individual holds a short position. If a trader has created an option spread by purchasing a put option and selling a call option, the trader's short position on the call would be considered the short leg.


Option spreads are positions created by options traders by buying and selling an equal number of option contracts, with differing strikes, on the same underlying security. Option spreads are used to limit overall risk by ensuring that gains and losses are restricted to a range. Additionally, option spreads can serve to bring the costs of options positions down, since traders will collect premiums from contracts in which they short.

  1. Spread

    1. The difference between the bid and the ask price of a security ...
  2. Bear Call Spread

    A type of options strategy used when a decline in the price of ...
  3. Bull Call Spread

    An options strategy that involves purchasing call options at ...
  4. Vertical Spread

    An options trading strategy with which a trader makes a simultaneous ...
  5. Exercise

    To put into effect the right specified in a contract. In options ...
  6. Put-Call Parity

    A principle that defines the relationship between the price of ...
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  2. How does a forward contract differ from a call option?

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  3. What are common delta hedging strategies?

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  4. How do I determine the breakeven point for a short put?

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