Courses
The Bid-Ask Spread and Why It Matters
The bid-ask spread is a real, immediate trading cost separate from whether your market view was correct, and it varies widely by how actively a contract trades.
The price you can buy at and the price you can sell at are almost never the same number — the gap between them is a real cost.
Buying high, selling low — by design
The bid is the highest price someone will currently pay for an option. The ask is the lowest price someone will currently sell it for. The gap between them is the bid-ask spread, and unless you trade right at the midpoint, you pay that gap every time you enter and exit.
Spreads aren't uniform. Actively traded strikes near the current price, on stocks with heavy options volume, tend to have narrow spreads — sometimes a penny or two. Strikes far from the price, distant expirations, or thinly traded stocks can carry spreads of $0.20, $0.50, or more — a much bigger bite out of a lower-priced contract.
Worked example
XYZ's $50 call is quoted at a $2.00 bid and a $2.20 ask — a $0.20 spread.
| Action | Price you likely get | |
|---|---|---|
| Buying the option | Near the ask, $2.20 | You pay the higher number |
| Selling it right back | Near the bid, $2.00 | You receive the lower number |
| Round-trip cost from the spread alone | $0.20/share, $20/contract | Lost with zero stock movement |
That $20 is the cost of immediacy — what market makers charge for being willing to trade with you right now, before the stock has done anything at all.
What traders do about it
Instead of accepting the ask (buying) or the bid (selling), many traders place a limit order — a set price you're willing to pay or accept — near the midpoint, rather than a market order, which fills instantly at whatever price is available. It won't always fill, but when it does, it claws back some of the spread.
Key takeaway: A wide bid-ask spread is a real cost that has nothing to do with whether your view on the stock was right — check the spread before entering a position, just like you'd check the strike.
Spreads and prices both move with one more factor worth understanding: implied volatility, up next.
This lesson is educational content explaining standard options mechanics, not personalized investment or trading advice.
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