Multi-leg option strategies involve using 2 or more options in a single strategy. This involves a combination of buying/selling call/put options and allow for additional flexibility in gaining exposure to a security. Options are by design, a limited risk instrument which allow investors to gain unlimited upside exposure to a security but limit the maximum risk to the amount paid for the option contract. Therefore, an investor can theoretically make an unlimited profit while only having to pay for the cost of the contract. This may sound tempting, but the main problem with buying options is that they are efficiently priced to reflect the expected move of the underlying security while taking into account the time to contract expiration and the implied volatility of the security. This means, that by expiration, the underlying security will need to surpass the breakeven price which is the sum of the strike price and the cost of the option contract (for call options). For this reason, buying a call or a put option does not have a great probability of profit despite the theoretical unlimited profit potential. 

Multi-leg options strategies allow for a better risk profile. This is done by either reducing the cost to enter the trade (or reducing the maximum risk of the trade). The downside to the reduced max risk is that investors will give up the maximum profit potential offered by buying a single leg call or put.

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Advantages of Multi-Leg Strategies

The benefits of utilizing multi-leg strategies are different for option buyers and option sellers. Multi-leg strategies allow option buyers to reduce the initial cost of the trade and because the max risk of buying an option is the cost basis itself, multi-leg strategies will reduce the max risk resulting in a more optimal risk/reward. For options sellers, multi-leg options strategies also reduce the max risk. However, when selling a call option, the max risk of the trade is theoretically unlimited as there is no limit as to how far the underlying security can rally. In the case of selling a put option, the max risk per share is the strike price of the options contract minus the premium received and will be realized if the security declines to zero. Using a multi-leg strategy allows investors to limit the max risk and reduce the margin requirement of selling a naked call or put. 

From an execution perspective, multi-leg strategies allow eliminate the risk of investors entering 2 separate trades to create a spread trade. This is because there is always a risk of one leg being executed while the other does not get executed at the same time or at all. This creates an unbalanced execution as the underlying stock can move significantly in the time it takes for the 2^nd order to get filled. Multi-leg strategies ensure that both legs get filled at a single order, thus eliminating unbalanced execution. 

Additionally, multi-leg strategies offer better fills when compared to buying and selling single legs. This is due to multi-leg strategies being able to get filled at the mid-price. Because multi-leg strategies are less risky for both the investor and the market maker, market makers are more willing to fill the trade at the mid-price. 

Using multi-leg orders allows for a more optimal risk/reward and eliminates many of the inefficiencies of using multiple orders to mimic multi-leg option strategies. This helps investors save time and money as the probability of the multi-leg order executing at a competitive price is increased when placed as a single order. Additionally, due to the defined risk of multi-leg strategies, there will be more buying power available as margin requirements are significantly reduced.