Vertical spreads
What are the operational steps to close out an illiquid vertical spread leg-by-leg?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
Closing an illiquid vertical spread leg-by-leg typically involves placing a limit order on the more liquid leg first, then separately closing the less liquid leg, rather than using a single combined spread order, since market makers may not fill combo orders efficiently on thin contracts.
How it works
This approach carries execution risk since the position is temporarily unhedged between filling the two legs, exposing the trader briefly to directional or volatility risk on the open leg.
An example
A trader might first buy back the short call of a spread at the ask, then separately sell the long call at the bid, accepting the brief exposure gap between the two orders.
Risk & limitations
Cboe notes leg-by-leg execution can result in slippage and brief unhedged exposure compared to a single spread order, particularly in fast-moving or thinly traded markets.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.