Bid-ask spread

The bid-ask spread is the difference between the highest price a buyer will pay for an option (the bid) and the lowest price a seller will accept (the ask). It's an immediate, invisible cost every time you enter or exit an options position.

When you buy an option, you pay the ask. When you sell, you receive the bid. The spread is the market maker's compensation for providing liquidity.

Why it matters: Wide spreads erode returns significantly. A $0.50 spread on a $2.00 option represents 25% of the option's value, lost immediately on entry, and again on exit. On a round trip, you've given up 25% of the option's value before the stock moves at all.

What tightens spreads:

• High daily volume and open interest
• Liquid underlying (SPY, QQQ, large-cap stocks)
• Strikes close to ATM
• Near-term expirations on heavily traded names

What widens spreads:

• Low liquidity underlying
• Far OTM or deep ITM strikes
• Long-dated expirations
• Fast-moving or low-volume market conditions

Example: SPY $510 call has a bid of $3.20 and ask of $3.22, a $0.02 spread, extremely tight. A small-cap biotech's $15 call might have a bid of $0.40 and ask of $0.90, a $0.50 spread that makes trading nearly impossible without giving up substantial edge.

Best practice: Always use limit orders placed at or near the midpoint of the bid-ask spread. Never use market orders on options, you'll almost always get a poor fill.

Related terms: Open interest, liquidity, premium, market maker, volume

Try it on Stryke: Filter by volume and open interest in the Options Screener to identify liquid, tight-spread contracts.