Multi-Leg Options Order

It sounds like a bad translation of a manga title. But it actually refers to a type of derivatives strategy.

The structure involves buying and selling multiple options for the same underlying asset, possibly using multiple strike prices and expirations. Each part of the strategy is known as a "leg." The goal is to hedge a main bet, or to take advantage of a specific situation.

Examples of these multi-leg situations include butterflies, strangles, and straddles (again, sounds like we've dipped into one of the more adult-themed manga titles here).

Let's take a straddle as an example. It consists of purchasing a put and a call for the same underlying asset. The strike prices and the expirations are both the same as well.

The call represents one leg of the straddle. The put provides the other. A call is a bet that the price of the underlying asset will go up and a put is a bet that the price will go down.

In a straddle, the investor wins no matter which direction the asset moves, as long as it moves far enough to make up the cost of buying the put and the call. It represents a bet on volatility in general. In other words, it's not a bet about which way an asset will move. It's a bet on how far.

The investor thinks it will rise or fall by a large amount, and has set up a multi-legged strategy to take advantage of this projected move.