Multi-Leg Options Orders Explained (A Simple Guide)

If you’re interested in trading a complex options strategy, such as a bear call spread, iron condor, or a collar, then you’ll want to place multi-leg orders.

Why? Because if you try to enter your orders one at a time, you could end up losing money. It’s that simple.

Fortunately, many of the online brokerages support multi-leg options orders. If you’re using one of those platforms to handle your day-to-day trades, you should be in good shape.

If not, then you should probably look at moving your account to to an online brokerage that supports multi-leg orders.

In this guide, I’ll go over multi-leg orders so you can understand why you should use them with advanced options strategies.

What's In This Guide

What Is a Multi-Leg Order?

Simply put: a multi-leg order allows you to enter two or more options orders at once.

For example, let’s say that you want to trade a bear call spread. That means you’re going to place two orders:

  • A purchase of an out-of-the-money call option
  • A sale of an in-the-money call option

When you enter a multi-leg order, you’ll place both orders at the same time. Those orders, by the way, are called “legs” (hence the name).

Since a bear call spread gives you a net credit, you’ll see right away the amount of money that will get deposited into your account once the whole transaction has completed. That’s yet another advantage of using multi-leg options orders.

When Would You Use a Multi-Leg Order?

You wouldn’t need to use a multi-leg order with a simple options strategy. For example, if you’re just buying a call, there’s no point in entering into a multi-leg order because you’re only placing a single trade.

However, a multi-leg order can be your best friend when entering into a complex options strategy. That’s because you can see the entire credit (or debit) at once.

You’ll also likely save on commissions with multi-leg orders. Many trading platforms charge a single commission (plus the per-contract commission) for the entire trade.

If you entered the options orders individually, you’d pay a separate commission for each order. That would take a significant bite out of your profit.

How Does a Multi-Leg Options Order Work?

The exact process for placing a multi-leg options order will vary from trading platform to trading platform. You’ll have to check out the documentation for your platform to determine how to do it.

Generally speaking, though, you’ll enter an options order as though you were entering a single order. Then, you’ll press a button on the order screen indicating that you’d like to enter another leg.

You’ll see more fields pop up where you can enter the next leg of your order. Do so in those fields.

If you still need to enter more orders, press the button again. Rinse and repeat until you’re done.

Somewhere on the trading screen, your online brokerage should show you the total credit or debit for the order. That’s how you’ll know if it’s “worth it” to move forward with the trade.

Good news: if you don’t like the total credit or debit, you can change it. In other words, you can effectively put a limit on the whole order so that it doesn’t trade unless the limit is reached.

In the example of the bear call spread above, let’s say your trading platform is showing that you’ll get a credit of $1.90 for the whole spread. You want at least $1.95, so you inform your trading platform not to execute the trades unless you can get at least that much.

Your trading platform will hold the order until it can generate your target income.

It’s also a great idea to place a multi-leg order so that you can avoid significant price fluctuations in your options orders between trades.

For example, let’s say you buy the long call option above for $1.05. You anticipate selling the other option for $3.00, leaving you with a net credit of $1.95 ($3.00 – $1.95).

However, between the two orders, the underlying stock moved significantly downward. As a result, you’re stuck selling the option for $2.00, leaving you with a net credit of only $0.95 ($2.00 – $1.05).

That’s a change that will significantly affect your return. You can avoid that kind of trap when you place a multi-leg order.

Read Also: How does the short call options strategy work?

Real Life Example Using a Multi-Leg Order?

Let’s say that Exxon Mobil is trading at $75 per share right now. You think that it won’t move much over the next month, so you decide to profit off its lack of volatility by opening an iron condor position.

An iron condor strategy involves four options trades. So you know that you’ll need to place a multi-leg order to ensure maximum profitability.

You start by selling an out-of-the-money put option with a $74 strike price for $1.50.

However, there are three more legs needed in the order.

On your trading platform, you see a button on the order screen that reads “Add an Option Leg.” (In fact, that’s exactly what you’ll see if you’re using ETrade).

You press that button and another row appears in your current order. In that row you enter an order for an out-of-the-money put option with a strike price of $73 for $1.20.

The total credit to your account so far is $0.30 ($1.50 – $1.20).

But you still have two more legs in the order.

You press the “Add an Option Leg” button again. Another row appears and you use it to sell the $76 call option for $2.00.

One last time, you press the “Add an Option Leg” button. Another row appears and you use it to buy the $77 call option for $1.58.

The total credit to your account from the last two transactions is $0.42 ($2.00 – $1.58).

So your total credit for the whole transaction is $0.72 ($0.30 + $0.42). At least at those prices.

Remember, prices on the open market can change even in a few minutes. It’s best to know what you’re getting out of the trade up-front.

Fortunately, many trading platforms allow you to set a price type. It usually appears as a drop-down on the order page.

In this case, you want to make sure that you get a credit of $0.72 per trade. So you select “Net Credit” from the drop-down and enter 0.72 in the “Net Credit” field.

Now, the whole transaction won’t execute unless you can get a net credit of no less than $0.72 per trade.

You can also specify how long you want that order to stay open. You’ll probably have four choices:

  • Good for day
  • Good for 60 days
  • Good until a specified date
  • Immediate or Cancel

With options, you’ll likely want to limit your orders to a single day before you modify them. That’s because time decay can significantly affect your outlook on the overall strategy.