How To Close A Multi-Legged Option Position
Option contracts can be held to expiration or, as they often are, traded prior to expiration. With multi-legged options, the entire position or any legs within the position can be closed at any time prior to expiration. Below are the simple steps to close an existing multi-legged option position from the chart.
1. To close the entire multi-legged position, right-click on the existing option position on the chart
This opens the menu allowing the position or legs to be Closed or Rolled (click here for instructions on rolling a single-legged option).
2. Click the closing selection from the menu
In this example, Sell to Close 3 Call Butterfly...(Each option contract will have its specific close selection.)
This will place a close position order ticket for the multi-legged option on the chart.
The close position order ticket will always do three things:
- Select the correct position size (in this case, 2 contracts)
- Place the order on the right side of the market (e.g.sell to close on long positions; buy to cover on short positions)
- Combine the order in an OCA (Once-cancels-all) group with any other Sell order on the chart.
3. If no changes are desired, simply click Sell to Close and confirm to place the order.
4. Set a Limit Price (optional)
The Limit slider shows the spread between the natural (in this case, the bid) and the far (in this case, the ask). To set a price (net premium) within the spread at which to place your order, click at any point on the slider. The limit value is seen in the price field next to the "Lmt" order type.
5. Use a Step to Limit order (optional)
Another way to take advantage of the spread is the Step to Limit order. Choose the Step to Limit order from the drop down menu. (A Step to Market order acts the same as a Step to Limit order except that if no preferable fill is achieved during the step period, the order then moves to the Market price.)
Set the beginning of the slider at the limit price desired for the initial order. This will be the limit price at which the order will be entered.
Over the predetermined time period the limit price (net premium) will be automatically modified up from the initial entry price toward the Natural (or selected) price. The step to limit order will attempt to secure a preferable fill price in this process. Modification stops if no preferable fill is received and the limit price reaches the Natural.
6. Submit the order
Click Sell to Close
Click Place Order to confirm and submit
7. To close a single leg of the multi-legged position, right-click on the existing option position on the chart
This opens the menu allowing the position or legs to be Closed or Rolled.
8. Click the closing selection from the menu for the partial strategy or single leg to be closed
In this example, Sell to Close 3 JulWk2Call 78.50
This will place a close position order ticket for the selected option leg(s) on the chart.
9. Repeat steps 3-6 for each leg(s) to be closed
The trading tools work on either a LIVE brokerage account or a PAPER (simulated) trading account. Live market trading requires an account with TC2000 Brokerage (www.TC2000Brokerage.com).