Reading the option chain
Why bid/ask spreads matter
The bid/ask spread is the gap between what buyers are currently willing to pay and what sellers are currently asking for an option contract. A wide spread means a trader gives up more value just entering and exiting the position, since a market order typically fills closer to the worse side of that gap. Tighter spreads generally mean a more liquid, more fairly priced contract.
By Option Ideas Editorial Team · Published September 2, 2026
The formula
- Mid price
- (Bid + ask) ÷ 2.
- Spread, as a percentage
- (Ask − bid) ÷ mid price.
Two contracts, same underlying
| A: bid $1.05 / ask $1.10 | Mid $1.075, spread $0.05 → 0.05 ÷ 1.075 ≈ 4.7% — tight, liquid |
| B: bid $1.00 / ask $1.20 | Mid $1.10, spread $0.20 → 0.20 ÷ 1.10 ≈ 18.2% — wide, thin |
Both contracts have the same $1.10-ish mid price. Trading contract B instead of A costs roughly four times as much of the position's value just to cross the spread once, before the stock has moved at all.
Risks and assumptions
- The 'mid' price used to judge a spread is a reference point, not a price anyone is guaranteed to actually get filled at.
- Wide spreads are common on options with low open interest and volume, and can widen further right when the market is moving fastest -- exactly when a trader might most want to act.
- A multi-leg strategy compounds this: each leg has its own spread, so the effective cost of entering a 4-leg position can be meaningfully worse than any single leg's spread suggests.
FAQ
Why do options usually have wider spreads than the underlying stock?
A single stock has one order book. Each expiration and strike is its own separate, thinner market -- fewer participants trading any one specific contract means market makers typically demand a wider spread to compensate for the risk of holding it.
What's considered a 'good' spread?
There's no universal number, but a spread under roughly 5-10% of the mid price is generally considered reasonably tight for a liquid underlying; anything well above that is worth noticing before trading it.
Does a limit order fix the problem?
It controls the worst price you'll accept, but doesn't guarantee a fill -- on a wide-spread contract, a limit order priced near the mid may simply never execute.
Primary references
Not hyperlinked deliberately -- verify current material directly on each organization's own site.
- The Options Clearing Corporation (OCC)
- Cboe Options Institute