Understanding Bid-Ask Spreads in Options Trading: How Poor Execution Costs Real Money

📍 Meet Sarah: A Smart Trader Making a Silent Mistake

Sarah Martinez, a 35-year-old accountant from Phoenix, had studied options trading for six months. She understood covered calls, probability of profit, and theta decay. She felt ready.

But Sarah didn’t realize her biggest mistake would be the one nobody warned her about, how she placed her orders.

🛑 The First Mistake: Selling at Market

It was a Tuesday morning when Sarah sold her first covered call on Microsoft, which was trading at $285.

She pulled up the option chain:

• Strike: 30 days out, $295 call

• Bid: $4.20

• Ask: $4.80

• Midpoint: $4.50

Eager to lock in the trade, Sarah hit Sell at Market. She was instantly filled at $4.20.

But she had just used a market order, and paid the price of impatience.

⚖️ Market Orders vs. Limit Orders

Here’s the difference:

Sarah’s mistake? She accepted the bid ($4.20) when she could have started with a limit order at the midpoint ($4.50).

📉 One Penny at a Time

By skipping the midpoint and taking the bid, Sarah gave up $0.30 per contract.
She sold 2 contracts. That’s $60 lost, in one click.

But then she kept doing it. Month after month.

🌀 A Costly Habit

Sarah made 12 trades that year. Here’s the pattern:

• Average loss per trade: $25-$30

• Contracts per trade: 4

• Annual capital lost to poor order execution: ~$1,200

She was quietly giving away more than a thousand dollars a year. And she wasn’t alone.

🙋‍♂️ Enter David: A Patient Pro

At a local investing group, Sarah met David Chen, another covered call trader with similar positions, but slightly better results.

Here’s how he explained it:

💡 David’s “Work the Mid” Rule

When you see a bid-ask spread like this:

• Bid: $1.90

• Ask: $2.10

• Midpoint: $2.00

David’s process:

1. Place a limit order at the midpoint ($2.00)

2. Wait a few minutes

3. If no fill, lower to $1.95 or $1.93

4. Never go below 90% of the midpoint

5. Repeat next time

🧠 Sarah’s Shift

Sarah was skeptical, but curious. She started working the mid.

Let’s compare two trades:

Average improvement: $20 per contract

📈 Annual Impact

Sarah made 52 trades that year, selling 1-2 contracts per trade.

• Execution improvement per contract: $21

• Contracts traded: 60

• Capital saved: $1,260

Time spent? Roughly 10 extra minutes per trade.

Effective hourly rate: Over $100/hour
20-year projected benefit: $50,000+ in extra wealth

🧰 Sarah’s New Rulebook

Want to stop leaving money on the table? Use Sarah’s “10-Minute Wealth System”:

1. Never use market orders on options.

2. Always start at the midpoint between bid and ask.

3. Place a limit order and wait 5-10 minutes.

4. Lower in small increments if needed.

5. Track how much better you did than the bid price.

🔑 The Bottom Line

Sarah didn’t need a better strategy. She needed a better process.

Every time she used a market order, she silently donated money to the market makers.

Now? She clicks smarter, works the mid, and quietly builds more wealth.

🧭 Key Takeaway for New Options Traders

Don’t rush the click. Work the mid.

• Market orders = fast, but costly

• Limit orders = patient, and more profitable

• One smart habit can save you thousands over time

📌 The next time you place an order, stop and ask: “Am I accepting the bid…or working the mid?”

Want More Options 101 Lessons?

This article is part of our Options 101: First Steps to Trading series at The Option Premium, designed to build a rock-solid foundation for options traders.

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Andy Crowder

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