We need to learn how to use Single-leg and Multi-leg option strategies, as they creates very different outcomes

Both Single-leg and Multi-leg option strategy are useful in their own way, thus we should know both of them so that we can use the right tool for the right job

If you are into options or are new to options, do check out the Explained Simply option tutorial series that I made first so that you know what is an option. It is a detailed and simplified way of explaining options.

So let's the a look at the difference between a single-leg option and the multi-leg option strategy

Single-Leg option strategy
Single-leg option strategy allow us to maximise our earning potential as compared to Multi-leg option strategy. If we buy a CALL option, we do not have a cap on our potential earnings, as stock price can go up to infinity. If we buy a PUT option, we can earn the maximum amount if the stock crash to $0. If we sell a CALL option or a PUT option, we earn the full premium (however we take on a lot of risk).

It is also the simpliest form so it is easier to trade it. If you think the stock price will go up, buy CALL option. If you think the stock price will do down, buy PUT option. If you want to buy shares at a certain price (non-guaranteed) while earning some pocket money (guarantee), sell PUT option. If you own 100 stocks and wanted to sell them at a certain price (non-guaranteed) while earning some pocket money (guarantee), sell CALL option.

Just using Single-Leg option we can already create amazing strategy to help us alter our returns for the better, without all the complexity of managing multiple options and margin. We do not need to burn our brains and remember that this CALL option affects the other CALL option that we have, which is linked to this PUT option that affects another PUT option .

Multi-Leg option strategy
However, Multi-Leg option strategy is very useful to help us to control risk, it give us more flexibility and allow us to customize our risk and reward parameters. Multi-Leg option strategies can be used to take advantage of specific market conditions, volatility expectations, or to hedge existing positions. For example, if we know that stock price will either crash big time or rally big time, we can do a straddle. A straddle is a direction neutral position, it doesn't care if the stock price goes up or down, it only cares about the stock price moving in a HUGE way.

With Multi-Leg option we can even create a synthetic position using a combination of options to replicate the risk and reward profile of owning a stock without actually owning it. An example will be to create a synthetic long stock position, by buy a CALL option and selling a PUT option with the same strike price and expiration date. By doing this, we can replicate the payoffs and risk characteristics of owning the underlying stock, but at a fraction of the cost of owning the underlying stock.

If we want to sell covered CALL option strategy on safe but expensive stocks, but do not have the money to buy 100 shares, Multi-leg option can also be used to for it. It is known as poor man's covered call, or long call diagonal debit spread. Since buying a CALL option is similar to owning 100 shares and it is cheaper than owning 100 shares, we could replace the 100 shares with a CALL option instead. So we could purchase a deep in the money CALL option that will expire in a year or 2, and then start selling covered CALL option weekly or monthly.

Conclusion
In my opinion, both Single-Leg options and Multi-Leg options are important, and we need to learn to use them correctly in the right environment. Both Single-Leg options and Multi-Leg options have their own advantages and purposes in options trading. Single-leg options offer simplicity and allow us to easily set up positions that maximise the potential earnings for that strategy. Where as Multi-leg options provide flexibility, customizability and enable us to control risk by giving up some of the potential earning. While single-leg options may be easier to trade and understand, multi-leg options can be powerful tools for experienced traders to fine-tune their risk and reward parameters or implement complex strategies.

Ultimately, the choice between Single-leg options and Multi-leg options depends on our goals, risk tolerance, and understanding of the strategies involved. It's essential to thoroughly study and comprehend the characteristics and potential risks of each strategy before implementing them in actual trading.

If you like to do a multi-leg option, do make sure that you have updated Moo Moo app to version 13.16 and above. You will be able to select from a list of common multi-leg option strategy or even create a custom multi-leg option strategy in the options tab and trade it easily

If you like you can also join all the option chat group by searching option and selecting Groups. In the groups, we can ask questions and discuss about options This way, we all can learn together