what is a leg trader?

Answer 1

A leg trader is a person who trades spreads using separate orders for each position in the spread.

If you are not familiar with spreads, a spread is a long market position and an offsetting short market position. For an example of a spread I opened today see

http://messages.yahoo.com/Business_%26_Finance/Investments/threadview?m=tm&bn=4686677%23optiontradestraderecommendations&tid=3318&mid=3318&tof=1&off=1

Each position in a spread is called a leg, so in the example above one leg was the long options and the other leg was the short options.

If I was leg trading I would have entered two transactions, one to buy the $7.50 strike puts and one to sell the $5.00 strike puts. Instead, I entered a single spread order which said "Buy 50 $7.50 strike puts and sell 150 $5.00 strike puts for a credit of $0.50." Since I am selling three times as many options as I am buying, that means I want $0.50 for each 3:1 set of options. Since $0.65 x 3 - $1.45 = $0.50 selling for $0.65 each and buying for $1.45 each satisfied my order.

A leg trader would have first entered an order for one leg, followed by a separate order for the other leg, such as

Buy 50 $7.50 puts at $1.45 in the first order and
Sell 150 $5.00 puts at $0.65 in the second order.

Most option traders prefer to use spread orders instead of legging into a spread.

Answer 2

Someone who only invests because of momentum in a stock.
Not by intrinsic value, on by the stocks movements

Answer 3

someone who buys and sells used prosthetic legs