The Bid vs Ask determines

• The spread between a position (difference between bid and ask)

• The spread is the range at where you can purchase a call or put; this is similar to purchasing shares

• e.g. 170 Strike has a 0.45 to 0.47 spread

  • • You would most likely go for the middle number of 0.46 to save, 0.47 if you want to make sure you get in, and 0.45 or lower if you believe it will drop

    • The tighter the spread the easier it is to get in an out without much slippage not getting the value you wanted)

    • If a spread were 1.50 to 3.00, there is a wide range that people could ask for the price and slippage will occur

• When there is a wide spread

  • • It is harder to enter or exit a position

    • You often lose value on your entry and exit price

    • If the spread is 1.50 to 3.00, purchasing at 1.75 already has you down 0.25 in the transaction

    • Difficulty in gauging your profitability - I once was up $500 in a position, used a market order, and it closed at $300

• In the section after Bid vs Ask, Open Interest vs Volume, you will learn about the how the number of buyers and sellers impact the bid and ask price

  • • The higher the interest and volume the tighter the spread

    • The lower the interest and volume the wider the spread