what are the disadvantages of legging into a bull call spread?

D

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?
 
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
 
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


:)
 
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.
 
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?
More...

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.
 
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.
More...

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.
 
The underlying matters ~

If you're trying to leg into an option with a bid/ask 1.00/1.10 and .25/.35 you might get an easier fill by entering a .75 debit.

If you're going to try and leg in I'd say mid-day of a down day is best - then you have the chance of a "stick save day" allowing you to buy in low and sell your calls higher.

One other advantage of entering the whole spread is penny pricing. Take my hypothetical spread above you might not get filled at .75 but you might if you lower your price by a penny or two which you can't do if you're legging in.
 
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