The Great Strategy of Legging Out!

I have been trading options for about 3 years now, starting in the late Summer of 2012. I have made a ton of mistakes, missteps, and bad decisions over that time frame. Most traders when they are novices will scour far and wide to find the "best methodology/strategy." Well, I can tell you, I think I'm on to something here.

The concept of legging out of a spread is great. When you use a spread, you limit your risk and keep the capital requirement small. This way if the stock goes against you, you can get out without taking much of a hit.

But, if the stock does go your way, all you have to do is take off that profit capping short side of the spread. This allows you to pick up "pure Delta/Gamma" as the stock moves, because you don't have negative Deltas from the short side offsetting the positive Deltas from the long side.

Ordinarily, on a dollar wide spread, say 45/46p for 0.50, the most you can make is $50. But once the stock declines past 45, you can buy back that 45p for a loss and ride the move lower on just the naked long put. This allows you to capture much more profit than was originally available in the spread, and you took on very little risk to put the trade on.

Legging out can be an immensely profitable strategy while utilizing little capital.

Today, TLT filled the gap and hit my profit target. I legged out soon after the open after it opened below 125.50, meaning I bought back the 128p for 4.10 after originally selling it for 2.00. So, I lost $440 on the short side. Then, TLT proceeded to fill the gap, and I sold the 129p for 5.76, buying it originally for 2.50. That's a profit of $1304.

So take the losses from the short side (-$440) and the profit from the long side ($1304) and BOOM
Total profit of $864 on an original $200 max risk spread! A 332% return on capital!

So without legging out, I could have sold the spread for around 0.77 for a modest $108 and 54% return. Still not bad and very acceptable for the risk taken. By why settle for that?