Bid-Ask Spread

The bid-ask spread is the gap between the bid — the highest price a buyer is currently willing to pay for an option — and the ask, the lowest price a seller is currently willing to accept. Market orders typically fill at or near the ask when buying and at or near the bid when selling, meaning the spread itself is a real cost paid every time a position is entered and exited, even with zero movement in the option's underlying value. Spreads tend to be narrow on heavily traded, near-the-money strikes and wider on distant strikes, longer-dated expirations, or thinly traded stocks. Many traders place a limit order near the midpoint of the spread rather than accepting the ask when buying or the bid when selling, in an attempt to capture back some of that cost. A wide spread is a cost that exists regardless of whether a trader's view on the stock's direction turns out to be correct.