The example
A three-leg combo, 100 contracts at 12¢ ($12.00 at risk). Leg 1 has settled yes. Leg A settles next and trades at 60¢ (the opposite side costs 40¢). Leg B settles last at 65¢ (opposite 35¢). With fees estimated at 7% × P × (1 − P):
Stage 1: cover your cost on leg A
Each opposite-A contract pays 60¢ if A misses. $12.00 ÷ 60¢ = 20 contracts, and the fee makes it 21. Cost: $8.40 plus a 36¢ fee.
| If… | Combo | Hedge on A | Net |
|---|---|---|---|
| A hits, B hits | +$88.00 | −$8.76 | +$79.24 |
| A hits, B misses | −$12.00 | −$8.76 | −$20.76 |
| A misses | −$12.00 | +$12.24 | +$0.24 |
Stage 2: after A hits
You've now spent $20.76 in total, all riding on B. If B's opposite side still costs 35¢:
| Stage 2 choice | Contracts | Net if B hits | Net if B misses |
|---|---|---|---|
| No further hedge | 0 | +$79.24 | −$20.76 |
| Cover total cost | 33 | +$67.16 | +$0.16 |
| Lock | 100 | +$42.64 | +$42.64 |
staged cover size = total spent so far ÷ (100 − opposite price), rounded up after fees
Staging vs. waiting
Staging protects you if A misses, but costs $8.76 if A hits, and that cost raises the amount the final hedge has to cover. Waiting keeps the $8.76 but loses the full $12.00 if A misses. Stage a hedge only when a miss on the first leg would hurt more than you can accept; otherwise the cleaner plan is to wait and hedge the final leg once.
Prices move between stages
After A settles, B's opposite price will rarely be exactly what it was. Recalculate stage 2 with the live price before you trade.
