You check your broker platform, ready to sell your first cash-secured put. The option shows a bid of $2.35 and an ask of $2.50. Which price do you actually get? And why does that $0.15 difference matter more than you think?
The bid-ask spread is the silent profit killer in options trading. While beginners focus on strike selection and delta, experienced wheel strategy traders know that spread costs compound across dozens of trades, potentially costing thousands per year in unnecessary losses.
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TLDR: Bid Ask Spread Explained
The bid-ask spread is the difference between what buyers pay and what sellers receive for an option. The bid is the highest price someone will pay right now, the ask is the lowest price someone will sell for right now, and the spread is the gap between them – which represents your immediate cost to trade.
Simple example: You want to sell a cash-secured put on Apple. The option shows:
- Bid: $2.30 ← This is what YOU receive if you sell right now
- Ask: $2.45 ← This is what you’d pay if you were buying right now
- Spread: $0.15 ← The difference ($2.45 – $2.30 = $0.15)
When you sell that put, you collect $230 per contract (bid × 100 shares). If you later buy it back to close the position, you might pay $245 (ask × 100 shares). That $15 spread cost is your immediate “friction cost” for the trade.
Why it matters: If you trade 20 wheel positions per year and lose an average $15 per round trip to spread costs, that’s $300 gone – not from bad trades, just from the cost of entering and exiting positions. On a $50,000 account making 20% annually, that spread cost alone reduces your returns from 20% to 19.4%.
The golden rule: Always target options with spreads under $0.05 (or less than 2% of the option price). Wide spreads eat your profits before you even manage the position.
Understanding the Bid Price in Options
The bid price represents what the market is willing to pay you right now for your option contract. When you’re running the wheel strategy and selling cash-secured puts or covered calls, the bid is your actual income.
Here’s how it works mechanically: Market makers and other traders place bids – they’re saying “I’ll buy this option for $X.” The highest of all those bids becomes “the bid” you see on your screen. This price updates in real-time as traders adjust their orders throughout the trading day.
What determines the bid price:
- Current stock price relative to strike
- Time until expiration (theta decay)
- Implied volatility levels
- Supply and demand for that specific contract
- Overall market conditions
For wheel traders, the bid price is critical because it’s your immediate “sell now” price. When you sell a $50-strike put with a $2.00 bid, you receive $200 per contract ($2.00 × 100 shares) deposited into your account immediately.
The bid price is always lower than the ask price. This isn’t arbitrary – it’s how market makers profit by buying at the bid and selling at the ask. The difference is their compensation for providing liquidity to the market.
Real example from a wheel trade: You’re selling a cash-secured put on Microsoft with 30 days to expiration. The $350 strike shows:
- Bid: $4.80
- Ask: $4.95
If you use a market order to sell, you get $4.80 × 100 = $480 per contract. That’s the bid price – your actual income for taking on the obligation to buy Microsoft shares at $350 if assigned.
Understanding the Ask Price in Options
The ask price is the flip side – it’s the lowest price at which someone is willing to sell you an option contract. For wheel traders, you encounter the ask price when buying-to-close positions or when opening long option positions.
Think of the ask as the “buy now” price. Just like the bid, it’s determined by the lowest of all the current sell orders in the market. If five traders are trying to sell the same option at $3.00, $3.05, $3.10, $3.15, and $3.20, the ask price displayed is $3.00 – the lowest available.
When wheel traders pay the ask:
- Closing a short put early (buying back your sold put)
- Closing a covered call early (buying back your sold call)
- Rolling positions (buying back the old, selling a new one)
- Opening protective positions (less common in basic wheel)
The ask price is always higher than the bid. This creates the spread – the gap that represents the cost of immediate execution. When you pay the ask and someone else receives the bid, that spread difference goes to market makers who facilitate the trade.
Critical insight for wheel strategy: Every time you close a position early – whether to take profits at 50% or to roll a challenged position – you’re paying the ask price. This is why understanding spread costs matters. If you’re systematically closing winners at 50% profit, you’re paying the ask on every close.
Real example: You sold a cash-secured put last week for $2.50 (at the bid). The position is now up 60% and you want to close it. The current prices show:
- Bid: $0.95
- Ask: $1.05
To close the position, you pay $1.05 × 100 = $105 per contract (the ask price). Your profit is $250 (what you received) – $105 (what you paid) = $145 profit. That $0.10 spread ($1.05 ask – $0.95 bid) was part of your trading cost.
What Is the Bid-Ask Spread?
The bid-ask spread is simply the difference between the bid and ask prices. It’s measured in dollars (or cents) per share, and since options contracts control 100 shares, you multiply by 100 to see the actual dollar impact.
Spread calculation: Spread = Ask Price – Bid Price
Example spread calculations:
- Bid $2.00, Ask $2.05 → Spread = $0.05 (5 cents)
- Bid $1.80, Ask $2.00 → Spread = $0.20 (20 cents)
- Bid $5.50, Ask $5.55 → Spread = $0.05 (5 cents)
The spread represents the immediate cost of a round-trip trade (opening and closing a position). Here’s why: when you sell an option, you receive the bid. When you buy it back, you pay the ask. The difference is your spread cost.
Round-trip spread cost example: You sell a put at the bid: Receive $2.00 Later you buy it back at the ask: Pay $1.05 Your spread cost: ($2.00 – $1.05) – (theoretical perfect price)
If the “fair value” of the option was $2.025 when you sold and $1.025 when you bought back, you lost $0.025 on entry and $0.025 on exit = $0.05 total spread cost per share, or $5 per contract.
What creates wide spreads:
- Low trading volume (fewer buyers and sellers)
- Low open interest (fewer total contracts outstanding)
- Extreme strikes (far OTM or deep ITM)
- Longer expirations (less trading activity)
- Small-cap or mid-cap stocks (less overall liquidity)
- After-hours or pre-market trading (reduced liquidity)
What creates tight spreads:
- High trading volume (active buying and selling)
- High open interest (many contracts outstanding)
- At-the-money strikes (most liquid options)
- Near-term expirations (more active trading)
- Large-cap stocks (S&P 500, tech giants)
- Regular market hours (peak liquidity)
For wheel strategy traders specifically, spread costs compound because you’re entering and exiting positions regularly. If you’re running 20 positions per year with an average $0.10 spread cost per round trip, that’s $10 × 100 shares × 20 trades = $20,000 in trading volume subject to spread costs.
On a $0.10 spread, that’s approximately $100-200 per year in spread costs. On a tight $0.03 spread, it drops to $30-60 per year. The difference matters – especially as your account grows and position count increases.
How the Bid-Ask Spread Affects Your Wheel Strategy Profits
Spread costs are invisible on your P&L statement, but they’re real. Every time you trade, the spread represents slippage – the difference between the theoretical perfect price and what you actually receive or pay.
The math of spread impact:
Let’s say you’re running a systematic wheel strategy with these parameters:
- 15 active positions at any time
- Average 30-day duration per position
- 12 full wheel cycles per year (entry + exit = 24 trades)
- Average option price: $3.00
Scenario A: Tight spreads ($0.05)
- Spread as % of price: 1.67%
- Cost per round trip: $5 per contract
- Annual spread cost: 24 trades × $5 = $120
- On $50k account making 20%: Reduces return to 19.76%
Scenario B: Wide spreads ($0.20)
- Spread as % of price: 6.67%
- Cost per round trip: $20 per contract
- Annual spread cost: 24 trades × $20 = $480
- On $50k account making 20%: Reduces return to 19.04%
The difference between tight and wide spreads is $360 per year – on just one contract per trade. Scale that to 3-5 contracts per position, and you’re looking at $1,000-1,800 annual difference.
Why wheel traders are especially exposed:
Unlike buy-and-hold investors who pay the spread once, wheel traders pay it repeatedly:
- Sell CSP (pay spread on entry)
- Assignment occurs (no spread, but now in stock)
- Sell covered call (pay spread on entry)
- Buy back covered call or get assigned (pay spread on exit)
- Repeat
That’s 3-4 spread costs per complete wheel cycle. If each costs $10-15, you’re paying $30-60 per complete cycle. Over 12 cycles per year, that’s $360-720 in pure spread costs.
The compounding effect:
Spread costs don’t just reduce this year’s returns – they reduce the capital available to compound next year. On a $50,000 account:
- Year 1: Lose $500 to spreads → Start Year 2 with $500 less
- Year 2: That $500 would have earned 20% = $100 missed
- Year 3: That $600 would have earned 20% = $120 missed
Over 10 years, $500 annual spread costs don’t cost you $5,000 – they cost you $7,500-8,000 due to lost compounding opportunity.
Identifying Good vs Bad Bid-Ask Spreads
Not all spreads are created equal. A $0.05 spread on a $1.00 option (5%) is terrible. A $0.05 spread on a $5.00 option (1%) is excellent. Context matters.
Spread quality framework:
Excellent spreads (prioritize these):
- Absolute spread: $0.05 or less
- Relative spread: Less than 1% of option price
- Examples: SPY $3.00 bid, $3.05 ask (1.67%)
Good spreads (acceptable for wheel trading):
- Absolute spread: $0.05-0.10
- Relative spread: 1-2% of option price
- Examples: AAPL $4.50 bid, $4.60 ask (2.22%)
Marginal spreads (use with caution):
- Absolute spread: $0.10-0.20
- Relative spread: 2-4% of option price
- Examples: AMD $2.00 bid, $2.10 ask (5%)
Poor spreads (avoid for wheel strategy):
- Absolute spread: $0.20+
- Relative spread: 4%+ of option price
- Examples: Small-cap $1.50 bid, $1.80 ask (20%)
How to evaluate in real-time:
When screening for wheel strategy candidates, add spread analysis to your criteria:
- Check open interest: Target 5,000+ for monthly expirations, 1,000+ for weeklies
- Calculate spread percentage: (Ask – Bid) / Bid × 100
- Compare to volume: Higher volume generally means tighter spreads
- Time of day matters: Spreads widen at open/close, tightest mid-morning to mid-afternoon
Red flags for bad spreads:
- Open interest below 500 contracts
- Spread wider than $0.20 on anything
- Spread percentage above 5%
- Bid is $0, ask is $0.10+ (no real bid side)
- Huge jump between strikes (illiquid option chain)
Real example comparison:
Stock A (SPY – S&P 500 ETF):
- 30-delta put, 30 DTE
- Bid: $3.95, Ask: $4.00
- Spread: $0.05 (1.27%)
- Open interest: 45,000
- Volume: 8,500
- Assessment: Excellent for wheel trading
Stock B (Mid-cap growth stock):
- 30-delta put, 30 DTE
- Bid: $2.80, Ask: $3.10
- Spread: $0.30 (10.7%)
- Open interest: 350
- Volume: 45
- Assessment: Avoid for wheel trading
The Stock B spread costs you $30 per round trip versus $5 for Stock A. Over 12 annual cycles, that’s $360 vs $60 – a $300 annual difference per contract.
Strategies to Minimize Bid-Ask Spread Costs
You can’t eliminate spread costs entirely, but you can dramatically reduce them with smart order management and stock selection.
Strategy #1: Use Limit Orders, Never Market Orders
Market orders guarantee execution at the current bid (if selling) or ask (if buying). Limit orders let you set your price and wait for the market to come to you.
Example:
- Bid: $2.00, Ask: $2.10, Spread: $0.10
- Market order to sell: Get $2.00 (the bid)
- Limit order at $2.05: Wait for buyer, receive $2.05
- Savings: $5 per contract
Place limit orders at the mid-price ($2.05 in this example) or slightly better. You’ll get filled on 60-70% of liquid options within minutes.
Strategy #2: Trade During Peak Liquidity Hours
Spreads widen dramatically at market open (9:30-9:45 AM ET) and close (3:45-4:00 PM ET). The tightest spreads occur mid-morning to mid-afternoon.
Typical spread patterns:
- 9:30-9:45 AM: Spread = $0.15
- 10:00 AM-3:30 PM: Spread = $0.05
- 3:45-4:00 PM: Spread = $0.12
Trade during the 10 AM – 3:30 PM window to minimize costs.
Strategy #3: Stick to High Liquidity Stocks
High open interest and volume = tight spreads. Target stocks with:
- Options volume: 10,000+ contracts/day
- Open interest: 5,000+ at your target strike
- S&P 500 components or major tech names
- Bid-ask spread consistently under $0.10
Examples of consistently tight spreads:
- SPY, QQQ (ETFs)
- AAPL, MSFT, GOOGL, AMZN (mega-cap tech)
- JPM, BAC (major banks)
- DIS, NKE (blue-chip consumer)
Strategy #4: Avoid Weekly Options on Less Liquid Stocks
Weekly options on anything outside the top 50 most traded stocks typically have wider spreads than monthly options. If you must use weeklies, stick to SPY, QQQ, AAPL, TSLA, and other ultra-liquid names.
Strategy #5: Scale Out of Positions
Instead of closing your entire position at the ask in one order, scale out:
- Close 30% immediately at ask
- Place limit order for remaining 70% at mid-price
- Wait for market to come to you
This reduces your average spread cost while still capturing profits.
Strategy #6: Use Options Screeners That Show Spread Data
When selecting wheel strategy candidates, filter by spread quality. Most screeners show bid/ask, but few calculate spread percentage or flag wide spreads automatically.
Here’s where tracking becomes critical: if you’re running 15-20 wheel positions simultaneously, manually checking spreads on every trade becomes tedious. After watching traders lose hundreds annually to wide spreads they didn’t notice, I built QuantWheel’s screener to automatically flag spread quality and help you filter for options with tight bid-ask spreads before you trade.
Strategy #7: Be Patient with Limit Orders
Don’t chase fills. If your limit order at mid-price doesn’t fill in 5-10 minutes, adjust by $0.01-0.02 toward the bid (if selling) or ask (if buying). Patience saves money.
Bad approach: Need to sell this now → Market order → Get bid → Lose $10 Good approach: Limit at mid → Wait 5 minutes → Adjust $0.02 → Get filled → Lose $2
That $8 difference per trade × 24 trades per year = $192 annual savings.
Common Bid-Ask Spread Mistakes Wheel Traders Make
Mistake #1: Assuming the Mid-Price Is Your Fill
Your broker shows a “mark price” or “mid-price” – the average of bid and ask. Beginners assume this is what they’ll receive. Reality: you get the bid when selling (below mid) and pay the ask when buying (above mid).
The fix: Always base your trade planning on the bid (when selling) or ask (when buying), never the mid-price. The mid is theoretical – the bid and ask are real.
Mistake #2: Trading Illiquid Options for Higher Premium
Wide spreads can make illiquid options look attractive. A $3.00 bid on a stock with a $3.40 ask isn’t actually $3.00 of real premium – it’s closer to $3.20 (mid-price), and you’ll only receive $3.00 while paying $3.40 to close.
The trap: “This small-cap pays $4.00 premium vs $3.00 on Apple” The reality: Small-cap spread is $0.30, Apple spread is $0.05 Round trip cost: Small-cap = $30, Apple = $5 Net premium: Small-cap = $370, Apple = $295 Actual advantage: Only $75 after spread costs, not $100
The fix: Always calculate net premium after estimated spread costs. High premium with wide spreads often isn’t worth it.
Mistake #3: Market Orders on Options
Market orders on options are almost always a bad idea. Unlike stocks where spreads might be $0.01, options spreads can be $0.10-0.50. A market order guarantees you get the worst possible price.
The fix: Use limit orders exclusively. Set at mid-price or $0.01-0.02 better, wait for fills.
Mistake #4: Not Adjusting for Time of Day
Trading at 9:35 AM means you’re paying inflated spreads. The same option that’s $0.05 spread at 11 AM might be $0.15 spread at 9:35 AM.
The fix: Set alerts, wait until 10 AM to trade, save on spread costs.
Mistake #5: Ignoring Spread Costs in Backtesting
When calculating expected returns or backtesting strategies, many traders ignore spread costs entirely. This makes the strategy look 2-4% more profitable than it actually is.
The fix: Assume $10-15 round-trip spread cost per contract in your calculations. If your strategy is still profitable after this realistic friction cost, it’s solid.
Mistake #6: Rolling Without Considering Double Spreads
Rolling a position (buying back the old, selling a new one) means you pay two spreads – one on the buy-back, one on the new sell. On wide-spread options, this can cost $30-50 per contract.
The trap: Roll a challenged put, pay $20 in spreads, only gain $30 in additional premium Reality: Net benefit is only $10 after spread costs
The fix: Calculate the net credit after spread costs before rolling. Sometimes taking assignment is cheaper than rolling illiquid options.
Bid-Ask Spreads Across Different Market Conditions
Spreads aren’t static – they expand and contract based on market conditions. Understanding these patterns helps you avoid expensive trading periods.
Normal market conditions:
- Typical spread: $0.05-0.10 on S&P 500 stocks
- Pattern: Tight during day, wider at open/close
- Strategy: Trade normally, use limit orders
High volatility (VIX > 25):
- Typical spread: $0.15-0.30 even on liquid stocks
- Pattern: Wider spreads due to uncertainty
- Strategy: Accept wider spreads on entries (higher premium compensates), be patient on exits
Market crashes (VIX > 40):
- Typical spread: $0.30-0.60+, sometimes bid is $0
- Pattern: Market makers pull back, liquidity dries up
- Strategy: Avoid trading entirely if possible, wait for normalization
Low volatility (VIX < 15):
- Typical spread: $0.03-0.05 on liquid stocks
- Pattern: Tightest spreads, best conditions for trading
- Strategy: Perfect time to close positions and roll, minimize costs
Earnings announcements:
- Typical spread: 2-3x normal width 24-48 hours before earnings
- Pattern: Uncertainty increases spread
- Strategy: Avoid trading options on earnings stocks unless intentional
After hours / Pre-market:
- Typical spread: 3-5x wider than regular hours
- Pattern: Limited market maker activity
- Strategy: Never trade options after hours unless emergency
The seasonal pattern:
Spreads tend to be tightest:
- Mid-morning to mid-afternoon
- Tuesday through Thursday
- Mid-month (away from monthly expiration chaos)
- During low-volatility periods
Spreads tend to be widest:
- First and last 30 minutes of trading day
- Mondays and Fridays
- Around monthly expiration (3rd Friday)
- During earnings season
- During market stress
Practical application for wheel traders:
If you’re systematically running the wheel, time your entries and closes for optimal spread conditions:
- Open new positions: Tuesday-Thursday, 10 AM – 2 PM, normal volatility
- Close winners: Any time during low volatility
- Roll challenged positions: Wait for VIX to drop below 20 if possible
- Avoid entirely: Earnings week, market open/close, after hours
Tools and Resources for Monitoring Bid-Ask Spreads
What to track:
- Current bid and ask on all open positions
- Spread as percentage of option price
- Historical spread data (to identify patterns)
- Spread quality during position entry
- Actual fills vs expected prices
Where to find spread data:
Your broker platform:
- Shows current bid/ask in real-time
- Limitations: No historical spread data, no spread quality scoring, manual monitoring required
Options screeners:
- Filter by open interest and volume (proxies for tight spreads)
- Some show bid/ask but not spread percentage
- Best for pre-trade analysis
Professional platforms (Think-or-Swim, TastyWorks):
- Detailed bid/ask data
- Volume and open interest filters
- Better visualization
- More expensive
QuantWheel: After losing money to wide spreads on illiquid options, I built spread quality monitoring into QuantWheel’s screener. It automatically flags options with spreads wider than 3% of the option price and helps you filter for tight-spread candidates when screening for wheel strategy stocks. This eliminates the manual math and prevents you from accidentally entering positions with expensive spreads.
What to look for in spread monitoring:
- Real-time bid/ask on all positions
- Alert when spread widens beyond threshold
- Historical spread data to time exits
- Spread cost tracking (actual $ lost to spreads)
- Fill quality analysis (did you get bid, ask, or mid?)
DIY tracking approach:
If you’re using spreadsheets to track wheel positions, add these columns:
- Entry bid
- Entry ask
- Entry fill price
- Entry spread cost (difference from mid-price)
- Exit bid
- Exit ask
- Exit fill price
- Exit spread cost
- Total spread cost per position
Sum spread costs quarterly to see actual impact on returns. Most traders are shocked when they realize spread costs are reducing returns by 1-3% annually.
Final Thoughts: Spread Awareness Separates Profitable from Struggling Wheel Traders
The bid-ask spread won’t make or break any single trade. But across 50-100 trades per year running multiple wheel positions, spread costs compound into thousands of dollars of drag on returns.
Beginners focus on strike selection and delta. Intermediate traders focus on position management and rolling. Advanced traders focus on total trading costs – including spread costs – and systematically minimize friction.
The 80/20 of spread management:
- 80% of benefit: Trade only liquid stocks (S&P 500, major tech)
- 15% of benefit: Use limit orders at mid-price
- 5% of benefit: Trade during optimal hours, avoid earnings/volatility spikes
Implement these three practices and you’ll capture most of the available savings without making spread management your full-time job.
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Risk Disclosure
Risk Disclosure: Options trading involves substantial risk and is not suitable for all investors. Past performance does not guarantee future results. This content is for educational purposes only and should not be considered investment advice. Always do your own research and consider consulting with a financial advisor before making investment decisions.
The examples used in this article are for educational purposes only and are not recommendations to buy or sell any security. All investment decisions should be based on your own analysis and risk tolerance.
