Video: Bid, Ask And Spread Explained: How To Get A Better Options Fill
Creator: Verified Investing
Original Video: Watch the original video
Difficulty: Beginner
The Big Idea
A correct underlying-market view can still produce an expensive options trade. Verified Investing explains the bid, ask, and spread, then demonstrates using a limit order rather than automatically paying the offer.
The durable lesson is to measure the contract’s execution cost and define a maximum acceptable price. The source’s Home Depot put discussion is a historical educational example, not a current recommendation. A midpoint is a negotiating reference, not a guaranteed fill or an objective fair value.
Bid, Ask, and Spread
The bid is the highest displayed buying price; the ask is the lowest displayed selling price for that option. Their difference is the quoted spread. Displayed size matters too: the best price may cover fewer contracts than the intended order.
The Options Industry Council’s trade-entry guidance explains that quotes can reflect different market participants and that order type affects execution. A spread is an observable quote difference. Slippage is execution relative to a chosen reference; the two concepts should not be treated as interchangeable.
Last trade, midpoint mark, bid, and ask are different prices. A stale last trade does not establish what you can buy or sell now, and a position marked at the midpoint may not be immediately liquidatable at that value.
State the Percentage Denominator
The source eventually calculates (ask − bid) ÷ bid × 100. Its opening wording is briefly reversed, but its worked examples use spread divided by bid. Other comparisons use midpoint or ask; label the convention.
| Bid / ask | Spread | Midpoint | Spread ÷ bid | Spread ÷ midpoint |
|---|---|---|---|---|
| $1.00 / $1.20 | $0.20 | $1.10 | 20.00% | 18.18% |
| $15.70 / $17.70 | $2.00 | $16.70 | 12.74% | 11.98% |
| $23.30 / $25.40 | $2.10 | $24.35 | 9.01% | 8.62% |
The video’s approximate $24.10 midpoint for the last pair is incorrect: ($23.30 + $25.40) ÷ 2 equals $24.35. Quotes can move while an order is being prepared, so recalculate from current prices rather than relying on the displayed historical example.
Translate the Quote Into Contract Dollars
Standard US equity option contracts generally represent 100 shares, although adjusted contracts can have different deliverables. Check the multiplier and contract details. With a 100 multiplier, a $2.10 quoted spread corresponds to $210 per contract.
If you buy at $25.40 and immediately sell at an unchanged $23.30 bid, the gross difference is $210 per contract before commissions and fees, about 8.27% of the $2,540 premium paid. That percentage differs from the 9.01% spread-to-bid measure because its denominator is the ask paid.
Five contracts would multiply that unchanged-quote crossing cost to $1,050. A percentage that sounds moderate can still be a large dollar hurdle relative to the expected move and risk budget.
Why “5–10% Is Healthy” Is Not a Universal Rule
The hosts describe broad spread categories, but these are their heuristics, not a universal liquidity standard. Even a 5% spread can be expensive for a short-duration trade with a small expected return. A wider relative spread can also occur in a very low-premium contract.
Evaluate absolute width, percentage width, displayed size, recent trading, quote freshness, underlying liquidity, expiration, strike, and intended order size. Large-cap and index-related products can have actively traded contracts, but not every strike and expiration is equally liquid. Market capitalization alone does not determine the fill.
Open interest and volume provide context; neither promises that enough contracts are available at the displayed best quote. Also distinguish ETF options such as SPY and QQQ from cash-settled index options, whose contract terms differ.
Walk a Limit Order With a Predefined Ceiling
- Verify the exact underlying, put or call, strike, expiration, multiplier, quote time, and quantity.
- Calculate spread dollars and a clearly labeled relative measure.
- Choose the maximum premium compatible with the thesis and risk plan.
- Submit a buy limit at the selected price, which may be near midpoint if appropriate.
- Check current quotes, partial fills, and thesis validity before changing the order.
- Cancel rather than chase beyond the ceiling.
A buy limit authorizes that price or better, not a guaranteed execution. It can remain unfilled even when the market moves favorably. Verify whether an amendment preserves quantity and how the broker handles cancel-and-replace, partial executions, and time in force. Repeatedly raising the limit without a ceiling recreates the urgency the method is meant to control.
The video’s 30–60-second waiting examples are not a suitable universal timer. In a fast market the quote and thesis can change well before that. A market order prioritizes execution but cannot guarantee the price; a limit order bounds price but can miss the trade.
Correct the Delta Interpretation
The source discusses a put around −0.59 delta. Delta primarily estimates the option-price change for a small underlying-price change, holding other inputs approximately constant. A negative put delta indicates inverse directional sensitivity; it does not mean negative is inherently “good.”
In an original first-order illustration, a $1 underlying decline could add roughly $0.59 per option share, or $59 for one standard 100-share contract, if delta and other inputs stayed unchanged. Gamma, implied volatility, time decay, and quotes can change that result. The underlying being right on direction does not guarantee a profitable option.
Delta is sometimes used as a rough model-dependent probability proxy, but it is not an exact probability of profit. Profit also depends on premium paid, holding period, exit, and costs. The video’s approximate put/call ratio likewise cannot establish a bullish crowd without identifying whether it refers to volume or open interest and what universe it covers.
Keep Entry Quality Separate From Thesis Validity
The hosts map resistance and discuss buying a January 15, 2027 $325 put. These are source-example terms, not live quotes. Their underlying invalidation is a break beyond the relevant resistance trendline; the excerpt does not specify a complete option-premium exit or all risk limits.
A favorable fill does not rescue a poor thesis. A valid chart thesis does not make an expensive premium acceptable. For a long option, budget the possibility of losing the premium plus costs even if the intended exit is sooner.
Review Execution With a Consistent Benchmark
Record the bid, ask, midpoint, sizes, timestamp, limit, actual fills, fees, and subsequent exit. Compare midpoint-start orders with a predefined alternative using matched conditions and include unfilled opportunities. Do not claim every unfilled midpoint order would have become a winner.
Measure price improvement against the quote at the decision time, fill rate, delay, partial fills, and the cost of missed opportunities. Keep the benchmark consistent so changes in market price are not mislabeled as negotiation skill.
Final Takeaway
Calculate spread width in both quote units and contract dollars, use the correct midpoint, and set a limit ceiling before negotiating. Better entry pricing matters, but a narrow-looking percentage and a favorable delta do not guarantee a good trade.
Risk Disclosure
This guide is educational, not financial advice or an options recommendation. Options are complex and can lose their entire premium; some short-option positions can create much greater or unlimited losses. Quotes, liquidity, volatility, time decay, exercise terms, commissions, and slippage affect results. Limits do not guarantee fills, and historical examples do not guarantee future outcomes. Verify the contract deliverable, expiration, order details, and risk capacity before trading.
CandleChasers independently interprets this source and is not affiliated with or endorsed by Verified Investing or its hosts. Source trade opinions belong to the creators; the corrected calculations and execution framework are CandleChasers’ own educational work.