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Bid-ask spread

The gap between the highest price buyers offer and the lowest sellers ask — a narrow spread means a liquid, cheaper-to-trade option.

The bid-ask spread is the gap between the highest price a buyer is willing to pay (the bid) and the lowest price a seller will accept (the ask). When you buy at the ask and could only sell back at the bid, that difference is a real cost you pay the moment you enter a position, before the market moves at all.

Say a call shows a bid of 1.20 and an ask of 1.40. Buying at 1.40 and immediately selling at 1.20 loses you 0.20 per share, or 20 dollars per contract, just on the round trip. Most traders don't pay the full ask; they place a limit order near the mid (around 1.30) and wait to get filled, which often shaves that cost in half.

The common mistake is trading illiquid options with wide spreads and using market orders. On far out-of-the-money strikes or thinly traded tickers, the spread alone can swallow a chunk of your edge. Check the spread as a percentage of the premium before you commit, and favor strikes with tight, liquid quotes.

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Educational use only. Quotes are delayed ~15 minutes and nothing here is financial advice. Options trading involves substantial risk of loss.