Pricing & Mechanics
Bid-Ask Spread
Also called: spread, market width
The bid-ask spread is the difference between the highest price buyers will pay (bid) and the lowest price sellers will accept (ask) for an option. It is the immediate cost of trading and a direct measure of liquidity.
Wide spreads erode returns twice, on entry and on exit. Liquid options in large-cap names and index products often trade with spreads of a penny or two; thinly traded strikes can show spreads of 20–30% of the option's value. Limit orders near the midpoint recover much of the spread in liquid names.
Flow analysis uses the spread to infer intent: a trade executed at or above the ask suggests an aggressive buyer, at or below the bid an aggressive seller, and near the midpoint a negotiated or passive fill.
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Frequently asked questions
Why are some options' bid-ask spreads so wide?
Low volume and open interest mean fewer market makers competing and higher inventory risk for those that do. Spreads also widen during volatile periods and outside regular trading hours.