Legging risk
Definition · Level 1 · Options basics
Keep reading with Tradecraft
Without an account, you can read three definitions every 30 days. Tradecraft explains all 738 terms and strategies, with the lessons that teach them, flashcards that come back before you forget, quizzes and a payoff lab.
The chance that prices move between separately executed parts of a multi-leg trade, worsening the net price or leaving an unhedged leg.
Example
Bought the stock, then it dropped a dollar before I could sell the call.
Where Tradecraft teaches it
Level 1 · Options basics, in the lesson “Managing covered calls, buy-writes & baskets”: Getting called away, dividend assignment, rolling, buy-writes and covered basket calls.
Related terms
- Basis risk (tracking risk)Risk that a hedge or replicating basket doesn’t move one-for-one with the exposure or index it is meant to offset, so gains and losses fail to…
- Buy WriteBuy the shares and sell the call at the same time, as one order at one net price.
- Called awayHaving your shares sold at the strike because a short call written against them was exercised and assigned to you.
- Covered Basket CallHold a basket of stocks that replicates an index or ETF, and sell calls on that index against it.
- RollingClosing an existing option and opening a similar one at a later expiry (out) and/or a different strike (up or down), usually as one spread order…
- 0DTE“Zero days to expiration”: options on their final trading day — little time value left, and near the money gamma and time decay are at their most…