legging out

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Legging Out

In a hedged investment, the act of closing one position while keeping the other open. For example, suppose one owns a stock and also holds a put option to sell that stock at a certain price in case the stock price drops significantly. In this case, legging out would involve selling the put option while continuing to own the stock.

legging out

The closing of one side of a hedged position while leaving the other side of the hedge position open. For example, an investor might buy an October call on ExxonMobil and sell short a November call on the same stock. Subsequently buying the November call to cover the short position while continuing to hold the October call results in the investor legging out.
References in periodicals archive ?
When a taxpayer disposes of (or changes a material term of) the hedge, the qualifying debt instrument is treated as sold for its fair market value (FMV) on the date of disposition of the hedge (the leg-out date), and any gain or loss on the qualifying debt instrument from the date of identification to the leg-out date is recognized on the leg-out date.
988-5T(a)(6)(ii)(C), which provides that if a hedge has more than one component "and at least one but not all of the components" are disposed of or otherwise terminated (or if part of any component of the hedge is terminated), then the date the component (or part of it) is disposed of or terminated is considered the leg-out date, and the qualifying debt instrument is treated as sold for its FMV on that date.
988-5T(a)(6)(ii)(D) states that, "[i]f the qualifying debt instrument is disposed of or otherwise terminated in whole or in part, the date of such disposition or termination shall be considered the leg-out date" (emphasis added), and the hedge (including all components making up the hedge in their entirety) is treated as sold for its FMV on the leg-out date, and gain or loss is realized and recognized accordingly.