Legging into a spread means building a multi-leg options position one leg at a time instead of executing the entire spread as a single order. This technique can potentially improve your fill prices but also carries significant risks.
What is Legging Into a Spread?
When you trade a spread as a single order, the broker executes both legs simultaneously at a net price. When you leg in, you execute each option separately, hoping to get better prices on each individual leg.
Example: Instead of placing a bull call spread order for a $2.00 debit, you might buy the long call first for $5.00, then wait for a better opportunity to sell the short call for $3.20, achieving a $1.80 net debit.
Why Traders Leg Into Spreads
- Price improvement: Potential for better fills on each leg
- Market timing: Capitalize on intraday price swings
- Directional flexibility: Start with one leg and add the other based on movement
- Wide spreads: In illiquid options, legging can avoid poor spread fills
The Risks of Legging
Legging carries significant risks that often outweigh the benefits:
- Price moves against you: The stock can move before you complete the second leg
- Directional exposure: With only one leg, you have naked exposure
- Execution risk: You might not get filled on the second leg at desired price
- Margin requirements: Naked options require more margin
Legging Gone Wrong
You buy a call for $5.00, planning to sell a higher strike call at $3.00.
The stock drops suddenly. Now the short call is only worth $2.00.
Your spread cost becomes $3.00 instead of the intended $2.00.
Worse, your long call has lost value and you are down significantly.
When Legging Can Work
Legging makes more sense in certain situations:
- Adding protection: You own stock and add a collar one leg at a time
- Converting positions: Turning a long call into a spread after a move
- Illiquid options: Very wide bid-ask spreads make single orders expensive
- Strong directional view: You want directional exposure first
Legging Strategies
1. Favorable Move Then Leg
Buy the first leg, then add the short leg after a favorable move:
- Buy long call, stock rises, then sell higher strike call
- The short call now sells for more premium
- Net cost of spread is reduced
- Risk: Stock could fall before you add second leg
2. Sell First Then Buy
For credit spreads, some traders sell the short leg first:
- Collect premium immediately
- Buy protection after stock moves in your favor
- Risk: Unlimited risk while naked short
- Requires higher approval level
3. Scale Into Position
Add legs at different price points:
- Buy half the long calls
- Add remaining longs on a dip
- Sell short calls on rallies
- Averages into position over time
Best Practices for Legging
- Start with the harder leg: Execute the less liquid leg first
- Set time limits: Do not wait indefinitely for the second leg
- Use limit orders: Know your maximum acceptable prices
- Monitor constantly: Be ready to complete or close the position
- Accept spread order if close: Do not let greed ruin a good trade
When to Trade Spreads as One Order
In most cases, trading spreads as single orders is better:
- Liquid options with tight spreads
- When you want defined risk from the start
- When you cannot monitor positions continuously
- When margin requirements matter
- For newer traders who need simpler execution
Track Your Spread Trades
Pro Trader Dashboard helps you monitor your options spreads and track performance across different strategies.
Summary
Legging into spreads can improve fill prices but carries execution and market risk. It works best for experienced traders who can monitor positions closely and accept the possibility of worse outcomes. For most traders and most situations, trading spreads as single orders provides better risk management and simpler execution.