Course · Act II: Expiration Day · Chapter 7
Option bid-ask spread
Bid, ask and mid, what a round trip really costs, market versus limit orders, volume versus open interest, and why far strikes and same-day quotes are so wide.
Key terms
- Bid and ask
- The best price a buyer will pay (bid) and the best a seller will take (ask). You buy at the ask and sell at the bid.
- Mid price
- Halfway between bid and ask. Where many screens mark your position, not a price anyone has offered.
- Bid-ask spread
- Ask minus bid. A round trip costs it, times 100, times the contracts.
- Limit order
- An order at a named price or better. It can save part of the spread, or not fill at all.
- Open interest
- Contracts still open, counted by the OCC once a day. Not today’s volume, and neither bullish nor bearish.
“Bid, Ask, and the Mid” is part of the full course: 6 puzzles on option bid-ask spread. RocketCo is fictional, and none of this is a trade. Try this act’s free chapter, “Exercise and Assignment”, first.
“Bid, Ask, and the Mid” is in Act II: Expiration Day. 6 puzzles, unlimited retries.
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