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DeltaSkelta
Registered: Jul 2012
Posts: 1 |
07-08-12 02:10 PM
I was just thinking about it, and other than more trade management, I could not really find much against legging into this kind of spread, but I may be missing something.
advantages:
1. More money ( from legging into the position, I can realize more profit, because I sell to open the short option when it is closer to the money and more valuable)
2. More "upside exposure" (because it is more valuable when I decide to open the short option, it simulates the stock moving higher and appreciating the value of the long call)
disadvantage:
1. If I was wrong and the market moved against me, it would have been less of a loss if I had bought the whole spread at once because of the amount that it would have reduced the debit.
Am I missing anything here?
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Don Bright
Bright Trading, LLC
Registered: Oct 2001
Posts: 11698 |
07-09-12 12:00 AM
Just like legging into anything, you're hoping you pick the right side first. If you think you have an edge doing that, then go for it. If you're more of a quant, then you'll likely want both sides....if your entry point/value is correct.
FWIW,
Don
__________________
Don Bright (not an alias)
Bright Trading, LLC
http://www.stocktrading.com
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diaoptions
Registered: Aug 2011
Posts: 392 |
07-09-12 12:19 AM
No such thing as legging into a bull call spread, a spread is the simultaneous buy/sell of options. You have three choices, all are separate trades:
- Buy a call
- Sell a call
- Buy call and sell call
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Put_Master
Registered: May 2009
Posts: 1029 |
07-09-12 02:15 AM
The only reason I would consider legging into a spread, is if the current values didn't offer the "minimum" dollars and/or annualized % return I desired.
If it does, then greed is NOT a good reason to leg in.
And of course, I'd have to feel good about the potential consequences of being naked on a bullish type trade. That being, owning a stock at that particular price.
Or whatever the potential consequence is of the type trade you are considering.
If you don't feel comfortable with the potential consequence, don't risk it, as legging in will only work in your favor.... sometimes.
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iceman1
Registered: Oct 2002
Posts: 4258 |
07-09-12 02:41 AM
Quote from DeltaSkelta:
I was just thinking about it, and other than more trade management, I could not really find much against legging into this kind of spread, but I may be missing something.
advantages:
1. More money ( from legging into the position, I can realize more profit, because I sell to open the short option when it is closer to the money and more valuable)
2. More "upside exposure" (because it is more valuable when I decide to open the short option, it simulates the stock moving higher and appreciating the value of the long call)
disadvantage:
1. If I was wrong and the market moved against me, it would have been less of a loss if I had bought the whole spread at once because of the amount that it would have reduced the debit.
Am I missing anything here?
I leg in a lot.
Like all other things, you win some and lose some.
On balance in today's options markets (unlike back in 1980s -lol) I think it makes sense on smaller size.
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Random.Capital
Registered: Jan 2005
Posts: 3848 |
07-09-12 02:47 AM
Quote from DeltaSkelta:
I was just thinking about it, and other than more trade management, I could not really find much against legging into this kind of spread, but I may be missing something.
What you are describing aren't advantages of legging, they're advantages of guessing market direction correctly.
And if you're able to do that, why mess around with spreads at all? Leverage-up and go for the jugular.
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