Overview

Multi-leg options strategies involve combining two or more option contracts in a single transaction. Multi-leg options strategies available on Wealthsimple include:

• Long straddles
• Long strangles
• Rolling options

It's important to understand that multi-leg strategies can be more complex and may involve specific risks, including commission charges applied to each individual leg of the trade (subject to your pricing plan) and potentially wider bid-ask spreads for the combined strategy.

Fees

Standard options trading fees generally apply to each leg of a multi-leg options order. For example, a two-leg strategy like a straddle would typically incur two separate fees: one for the call option and one for the put option.

Understanding long straddles and long strangles

Long straddles and long strangles are options strategies that allow you to profit from significant price movements in an underlying security, regardless of whether the price moves up or down. These strategies are particularly useful around events like earnings announcements or economic data releases that can cause large market shifts.

Wealthsimple allows you to set up a long straddle or a long strangle in a single transaction. You can also view combined premium costs and break-even points, and monitor both parts of the position as a unified whole.

Long straddles

A long straddle involves buying both a call and a put option for the same underlying security at the same time. These options have identical strike prices and expiration dates.

You might consider a long straddle if you expect a significant price movement in the underlying security but are unsure of the direction. The potential profit for a long straddle is theoretically unlimited if the stock price moves significantly up or down. The maximum loss is limited to the total premium you pay for both options contracts, plus any commissions.

Long strangles

A long strangle is similar to a long straddle, but it involves buying call and put options with different strike prices while keeping the same expiration date.

Similar to a long straddle, you might consider a long strangle if you anticipate a significant price movement in the underlying security but are unsure of the direction. Because strangles use out-of-the-money (OTM) options, they are generally less expensive to set up than straddles. However, the underlying security's price must move more significantly for a long strangle to become profitable compared to a straddle. The maximum loss is limited to the total premium you pay for both options contracts, plus any commissions.

How to set up a long straddle or long strangle

Follow these steps to set up a long straddle or long strangle:

1. Log in to your Wealthsimple account
2. Use the search bar to find the security you want to trade options on
3. Select the Options tab
4. Set up your desired call and put options
   • Straddle: Ensure there's an identical strike price and expiration date.
   • Strangle: Ensure there's a different strike price and the same expiration date.
5. Your chosen strategy type will update at the top of the order form
6. Review your order details
7. Select Submit order

Understanding rolling options

Rolling an options position means closing an existing option contract and opening a new one with a different expiration date, strike price, or both. You might do this to extend the timeframe of your strategy, adjust to changing market conditions, or manage risk.

The net premium is the price you pay or receive when you roll your option. The net premium can result in a debit or credit to your account.

• A debit means you're paying to roll the position. This happens when the cost of the option you buy exceeds the proceeds of the option you sell.
• A credit means you're receiving money to roll the position. This happens when the proceeds of the option you sell exceed the cost of the option you buy.

Types of rolls

You can perform several types of rolls:

• Roll forward/out (same strike, later expiration)
• Roll back/in (same strike, earlier expiration)
• Roll up (higher strike, same expiration)
• Roll down (lower strike, same expiration)
• Diagonal roll (different strike and different expiration)

How to roll your options

Follow these steps to roll your options:

1. Log in to your Wealthsimple account.
2. From the Home page, scroll down to Holdings
3. Select an options contract position
4. Select the Roll button shown in the contract details
5. Choose your desired roll parameters:
   • Pick a new expiration date from the dropdown menu
   • Choose a new strike price (if rolling up or down)
   • Verify the number of contracts you want to roll
   • Enter the limit price
6. Select Review
7. Confirm your roll order details and submit your order

Track the status of your roll order

You can track your roll order's status in the Activity tab at the top of the screen.

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• Trade options at Wealthsimple