Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Leg Out

What it is:

Legging out means to unwind part of a transaction.

How it works (Example):

Let's say John Doe conducts an options straddle, which involves buying a call and a put with identical expiration dates. His broker first has to purchase the call, then purchase the put, though he does this nearly simultaneously. John decides that he wants to get out of the put transaction, so he calls his broker and says he wants to leg out of the put. The broker legs out by selling the put that John just bought.

Why it Matters:

Plenty of investors get cold feet or obtain information about the market that causes them to change their minds. Legging out, however, can leave the investor with unusual risk exposures, as John's example shows, and can increase the investor's brokerage fees.