5:24 add a comment Photography Science Fiction Fantasy Graphic Design Movies TV Music: Practice Theory Worldbuilding Seasoned Advice (cooking) The bid - ask spread is a very important liquidity metric that all stock and options traders should pay. One explanation for this is that market participants start scrambling to enter or exit positions, willing to pay more than the asking price or receive less than the bidding price. Either way, it's clear that the minimum bid - ask spread is four times wider in the 365-day options than in the 60-day options. Wider bid - ask spreads indicate less active trading products, as well as more significant losses from slippage.
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Up vote 104 down vote favorite 51 In my online brokerage account, I want to buy a particular stock and I see the following: Bid :.20 x200 Ask :.27 x1,000 the current stock price.22. Bid - Ask Spreads. At the end of the day it is subtracted from the Cash Balance). In this example, it's important to note that the bid - ask spread increased from.025.15 as market volatility increased, but these were the closing bid - ask spreads. If you aren't paying attention to your bid - ask spread when you place.
Regarding the in-the-money options, the bid - ask spread is slightly narrower in the 365-day options, which could be explained by higher trading volume in the long-term in-the-money options.
Either way, it s clear that the minimum bid - ask spread is four times wider in the 365-day options than in the 60-day options.
A.20 bid / ask spread on an option that trades between 5-7 is considered tight and a stock-option that trades over 10 and has.30 bid ask is considered to be tight.
The bid / ask spread is important because it impacts the cost of trading options.