What are the differences between single-leg and multi-leg option orders?
Single-leg option orders: These orders involve purchasing (buying or selling) a single option contract (either a call or put option).
Multi-leg option strategies: These orders involve multiple, different option contracts that are traded as a group. Multi-leg orders often include contracts grouped together as a single strategy. Common multi-leg strategies include Spreads, Straddles, Strangles, Butterflies, or Condors.
Single-leg option strategies generally have risk and return characteristics that are closely related to the direction and magnitude of movement of the underlying stock. They are often used for directional bets, hedging, or speculation on a single underlying asset.
Multi-leg strategies have much more complicated risk and return characteristics depending on the components of the strategy. Multi-leg strategies can be structured for a variety of purposes, including hedging, income generation, volatility trading, or taking advantage of specific market outcomes (e.g. expecting low volatility or price movements around a specific date range).
On Public, opening multi-leg strategies is limited to limit orders. However, you may close a multi-leg strategy via both a limit or market order.
How do multi-leg orders get executed?
Multi-leg orders are sent to the market as a single, combined order to ensure that all legs are filled at the same time, and that no legs within the strategy remain unfilled. With a multi-leg order, all legs in one unit of a given strategy are filled at the same time.
For example, if you are opening a strategy purchasing 1 put and 1 call contract and submit a quantity of 3 strategies, you may get a partial fill on the strategy (e.g., 1 of 3 strategies), but for each strategy unit filled, you must purchase 1 put and 1 call. For your 1 long put and 1 short put multi-leg order, you can never have 3 puts filled and 0 calls. You must always have 1:1 long call to long put.
Multi-leg trades that require cash to open are ‘debit’ trades since they require funds from the investor to enter the strategy. Multi-leg trades that result in proceeds, or an earned premium as a result of the trades, are generally termed ‘credit’ trades, since the user receives proceeds upfront as a result of the trade.
What types of multi-leg strategies does Public offer?
Public offers many multi-leg strategies, including Long Straddles & Strangles, Collars, Debit Spreads, Long Butterflies, and Long Condors.
Public will add the remaining multi-leg strategies – Credit Spreads, Short Butterflies, and Short Condors – later this year when we launch Margin Investing.
You can learn about these strategies on our Option’s Resource Center.
If you are Level 3 or Level 4, you may also use a multi-leg order to roll a single-leg strategy, such as a Long Put, Long Call, Covered Call, or Cash-Secured Put.
Who can trade multi-leg option strategies at Public?
It is important to understand which investment strategies make sense for you. Options trading is risky and may result in loss of principal or potentially more. There are a few requirements for members who want to trade multi-leg strategies given the increased complexity and risk that comes along with these strategies:
Member must be approved for options level 3 or 4
Member must have a margin account - multi-leg strategies are not available in cash accounts
Coming later this year, Public will also offer Margin Investing. Members must have Margin Investing enabled and maintain at least $2,000 in their brokerage account per FINRA’s minimum margin rules to trade credit spreads or other credit strategies and trade on Margin.
For further questions please contact Member Support via in-app chat or email at support@public.com.
Options carry significant risk and are not suitable for all investors. Options investors can rapidly lose the value of their investment in a short period of time and incur permanent loss by expiration date. Certain complex options strategies carry additional risk. There are additional costs associated with option strategies that call for multiple purchases and sales of options. Supporting documentation for any claims will be furnished upon request. Prior to buying or selling an option, investors must read and understand the “Characteristics and Risks of Standardized Options,” which can be found at: public.com/ODD. See full terms of the Options Order Flow Rebate Program at public.com/disclosures/rebate-terms. Rebate rates are subject to change for new and existing enrollees.