I used to be paranoid about legging in the two legs of a bull call spread. My fear was that prices may move against me in the intervening period between trading both legs. So my view then was that buying both legs as a spread order was superior because:
1. Avoids the risk that prices move against you.
2. MMs give you a better price if the bull call was purchased as a spread order.
Lately, I have not been too sure about point (2). The MM did not seem to bite unless the price was much more favourable to him/her. That got me thinking about point (1) ie. is the fear of prices moving against you warranted?
I started a little spreadsheet with a hypothetical scenario of three possible spot movements:
a. spot moves up a dollar between legs
b. spot does not move between legs
c. spot moves down a dollar between legs.
By transacting the long leg first and then transacting the short leg after the spot moved, (a) was more favourable than buying a spread. (c) was less favourable than buying a spread. As expected (b) is identical to buying a spread.
But what surprised me most was that the gains in (a) far outweigh the losses in (b). This seems to suggest that in the long term, legging should be preferable to buying a spread if you intend to put on a bull call.
What are your experiences on this issue? In particular, I would be interested to hear your opinions re:
1. MMs give you a better deal if you buy the spread instead of legging.
2. Your views on the long term implications of legging ie. is it better than buying the spread?