multileg

Multileg is a term used in finance to describe trading strategies or orders that involve more than one option contract tied to the same underlying asset. Each individual contract is called a leg. By combining several legs, traders can sculpt payoff profiles that respond to moves in price, volatility, and time to expiration in ways a single option cannot.

Common forms include vertical spreads (same expiry, different strikes), calendar or horizontal spreads (same strike, different expiries), and diagonal spreads (different strikes and expiries). Other multileg structures include butterflies, condors, ratio spreads, and backspreads, which mix multiple calls and/or puts to create particular risk and reward characteristics. In practice, many multileg positions are executed as a single multi-leg order on options exchanges, although some brokers may fill legs sequentially or use synthetic replication.

Purpose and considerations: Multileg strategies are used to hedge risk, generate income, or speculate with defined risk parameters. They allow nuanced exposure to changes in price, volatility, and time decay. Because they combine several contracts, the aggregate risk, reward, and sensitivities (the Greeks) can be more complex to manage, and liquidity and commissions can vary by leg. Margin requirements and execution risk are important considerations, especially for illiquid underlyings or exotic combinations.

In summary, multileg strategies expand the toolkit of options traders by enabling customized risk–reward profiles across various asset classes, including equities, indices, commodities, and FX options.