Complex options order (multi-leg) is an advanced option-trading instrument that provides the trader with maximum flexibility in implementing their ideas.
While buying a Call or Put option provides unlimited profit from a one-way movement of the underlying asset and protects against a move in the opposite direction, buying a combination of options allows to profit from a much wider range of scenarios (for example, if the underlying asset's price remains within a predetermined range or, conversely, moves beyond). The complex options order (also known as a multi-leg or complex strategy) is an instrument for efficient acquiring combinations of options.
The multi-leg derived its name from the simultaneous purchase (or sale) of several different options (called "legs" of a complex options order) on the same underlying asset (SPY, NVDA, AAPL, etc.). The underlying asset itself often serves as one of the legs of the multi-leg.
- Each combination of options has its own return profile - scenarios in which it will bring a profit and those in which it will incur a loss
- An option combination can be assembled on your own: calculate which options would be optimal if the intended scenario unfolds and buy (or sell them directly)
- Some combinations of options can be bought in a single order without having to assemble them manually, and traders often come up with their trading ideas in terms of these standard combinations (multi-legs).
What is the advantage of using standard multi-legs?
- If you do not use the existing functionality and manually assemble all the legs of the multi-leg, you will lose the bid-ask spread for each option (in case of a market order)
- It is very easy to make a mistake and buy the wrong option
- While you are buying one of the options, the price of the second one may “go away” – the opportunity will be missed
- There is no way to place a limit order on the entire portfolio of options.
The standard multi-leg instrument solves all these problems.