legging out

(redirected from Legging-Out)

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 ?
The IRS and Treasury have indicated that because the regulations do not explicitly address legging-out transactions involving multiple Regs.
The straddle rules do not prevent the recognition of the loss on the debt, however, because the legging-out regulations specifically provide that the loss is recognized at the time of the legging-out.
The temporary regulations prevent a perceived timing mismatch and tax the transaction in accordance with its economic substance by providing that the legging-out rules apply to all the positions making up the qualifying hedging transaction and by expanding (or clarifying) the application of the legging-out rules.
The temporary regulations also indicate that a partial termination of a qualifying debt instrument will trigger the legging-out rules.
The regulations appear to be a reasonable way to eliminate what may have been perceived as a small loophole in the legging-out provisions of the integration regulations.