What is a Multi-Leg Options Order
A multi-leg options order is a type of order used to simultaneously buy and sell options with more than one strike price, expiration date, or sensitivity to the underlying asset's price.
BREAKING DOWN Multi-Leg Options Order
A multi-leg options order is used to enter complex strategies, in place of using individual orders for each option involved. This type of order is primarily used in multi-legged strategies such as a straddle, strangle, ratio spread, and butterfly. The commission and margin requirements may be less, with some brokers, when a multi-leg trade is executed as a unit rather than several individual orders.
A multi-leg option order may also make it easier to plan for the cost of the trade's bid-ask spread costs. For example, one multi-leg order can be used to buy a call option with a strike price of $35, a put option with a strike price of $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 orders, each of which have a bid-ask spread of $0.05 and a $7.00 plus $0.50 per-contract commission, for a total of $15.10.