the ask-bid spread, which can easily be 10% or more
Options are much less liquid than the underlying, since the market is divided among so many strikes and dates. If the spread is less than 10% of the ask price, that’s actually considered pretty good for an option. You can also look at open interest (the number of open contracts) and volume (the number traded today) for each contract to help judge liquidity (this information should also be available from the broker.) Typically strike prices closer to the underlying price are more liquid. Also, the monthly (third-Friday) contracts tend to be more liquid than the Weeklys. (Weeklys weren’t available before, so monthly contracts are something of a Schelling point. They also open sooner.)
Do not trade options with market orders. Use limit orders and make an offer at about the midpoint between bid and ask. The market maker will usually need some time to get around to your order. You’ll usually get a fill within 15 minutes. If not, you may have to adjust your price a little before someone is willing to take the other side of the deal. A little patience can save a lot of money.
Options are much less liquid than the underlying, since the market is divided among so many strikes and dates. If the spread is less than 10% of the ask price, that’s actually considered pretty good for an option. You can also look at open interest (the number of open contracts) and volume (the number traded today) for each contract to help judge liquidity (this information should also be available from the broker.) Typically strike prices closer to the underlying price are more liquid. Also, the monthly (third-Friday) contracts tend to be more liquid than the Weeklys. (Weeklys weren’t available before, so monthly contracts are something of a Schelling point. They also open sooner.)
Do not trade options with market orders. Use limit orders and make an offer at about the midpoint between bid and ask. The market maker will usually need some time to get around to your order. You’ll usually get a fill within 15 minutes. If not, you may have to adjust your price a little before someone is willing to take the other side of the deal. A little patience can save a lot of money.