Previously in this column, we discussed the execution cost relating to bull call spread. This week, in the context of ratio spreads, we discuss the difference in executing a basket order and a multi-leg order.

Ratio spread involves buying a lower strike call and shorting two higher strike calls, which may be of different strikes. Manually placing three legs to initiate the order can lead to slippage costs. By the time you confirm the order for the long leg and place the order for the two short legs, prices can decline. New-generation brokers allow you to place a basket order that works top-down. That is, the order at the top is executed first, and moves down sequentially. That means you must place the long leg first followed by the two short legs. This way, you can avail of NSE SPAN spread margin benefits. Note that the spread margin benefits will be only available for one short leg. The other leg will be naked short and will require full margin. 

Basket orders have an issue; your order may be only partially filled. Suppose you place limit orders for all three legs. It is possible that the long leg is executed while one or both short legs may not be filled at the limit price. Note that the long leg is typically the immediate out-of-the-money (OTM) strike whereas the first short leg should be above an identifiable resistance level. The other short leg can be one strike above the first short leg. Alternatively, you can short two contracts of the first short strike. You should choose this strategy if two conditions are met. One, the identifiable resistance level is strong and you are confident that the underlying is unlikely to move past that level. And two, the strike is liquid so that your order is executed at the best price. 

Some brokers offer multi-leg order to execute spread trades. There are two advantages. For one, all three legs are executed simultaneously, not sequentially as in the case of basket orders. This eliminates slippage costs. This also means you do not have to worry about sequence of the orders. The order is considered as a combination and allows you to avail the NSE SPAN spread margin benefits. For another, you can place limit order requiring your broker to execute the trade only if combination of the three legs gets you the required net credit. The flip side is that the order is typically immediate or cancel. So, your net credit for the limit order must be reasonable to have a high likelihood of getting executed.

Deciding a strategy based on your outlook of the underlying is only one part of the trading plan. The other part is to know how to execute the strategy efficiently. You should be mindful of slippage costs and partial fills in a spread strategy, as they can expose you to high risk.

(The author offers training programmes for individuals to manage their personal investments)

Published on September 13, 2026