Short Leg

A A A

DEFINITION

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.

INVESTOPEDIA EXPLAINS

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.


RELATED TERMS
  1. Exercise

    To put into effect the right specified in a contract. In options trading, the ...
  2. Vertical Spread

    An options trading strategy with which a trader makes a simultaneous purchase ...
  3. Spread

    1. The difference between the bid and the ask price of a security or asset. ...
  4. Bull Call Spread

    An options strategy that involves purchasing call options at a specific strike ...
  5. Bear Call Spread

    A type of options strategy used when a decline in the price of the underlying ...
  6. Multibank Holding Company

    A company that owns or controls two or more banks. Mutlibank holding companies ...
  7. Short Put

    A type of strategy regarding a put option, which is a contract that allows (but ...
  8. Wingspread

    To maximize potential returns for certain levels of risk (while necessarily ...
  9. Volatility Smile

    A u-shaped pattern that develops when an option’s implied volatility is plotted ...
  10. Nadex

    Nadex stands for the North American Derivatives Exchange, a regulated Chicago-based ...
Related Articles
  1. Pin Down Stock Price With Real Options
    Investing Basics

    Pin Down Stock Price With Real Options

  2. The
    Options & Futures

    The "True" Cost Of Stock Options

  3. Should Your Options Go Naked?
    Options & Futures

    Should Your Options Go Naked?

  4. The History Of Options Contracts
    Options & Futures

    The History Of Options Contracts

  5. Going Long On Calls
    Options & Futures

    Going Long On Calls

  6. Selling Premium As Small Caps Play Catch ...
    Options & Futures

    Selling Premium As Small Caps Play Catch ...

  7. Trade Like A Hedge Fund Master
    Options & Futures

    Trade Like A Hedge Fund Master

  8. Invest Like Madoff - Without The Jail ...
    Options & Futures

    Invest Like Madoff - Without The Jail ...

  9. How To Profit From Recent Market Divergence
    Options & Futures

    How To Profit From Recent Market Divergence

  10. Binary Options
    Options & Futures

    Binary Options

comments powered by Disqus
Hot Definitions
  1. Quanto Swap

    A swap with varying combinations of interest rate, currency and equity swap features, where payments are based on the movement of two different countries' interest rates. This is also referred to as a differential or "diff" swap.
  2. Genuine Progress Indicator - GPI

    A metric used to measure the economic growth of a country. It is often considered as a replacement to the more well known gross domestic product (GDP) economic indicator. The GPI indicator takes everything the GDP uses into account, but also adds other figures that represent the cost of the negative effects related to economic activity (such as the cost of crime, cost of ozone depletion and cost of resource depletion, among others).
  3. Accelerated Share Repurchase - ASR

    A specific method by which corporations can repurchase outstanding shares of their stock. The accelerated share repurchase (ASR) is usually accomplished by the corporation purchasing shares of its stock from an investment bank. The investment bank borrows the shares from clients or share lenders and sells them to the company.
  4. Microeconomic Pricing Model

    A model of the way prices are set within a market for a given good. According to this model, prices are set based on the balance of supply and demand in the market. In general, profit incentives are said to resemble an "invisible hand" that guides competing participants to an equilibrium price. The demand curve in this model is determined by consumers attempting to maximize their utility, given their budget.
  5. Centralized Market

    A financial market structure that consists of having all orders routed to one central exchange with no other competing market. The quoted prices of the various securities listed on the exchange represent the only price that is available to investors seeking to buy or sell the specific asset.
  6. Balanced Investment Strategy

    A portfolio allocation and management method aimed at balancing risk and return. Such portfolios are generally divided equally between equities and fixed-income securities.
Trading Center