If you look at an option chain you will see the Last, Mark, Bid, and Ask. Let’s use an example to help everyone understand how these numbers are established. These prices establish the bid/ask spread. Sellers are bidding exact prices to try to get filled. Sellers offer prices they’re willing to receive to sell the option. Buyers are bidding exact prices to try to get filled. Buyers offer the price they’re willing to pay – this is the bid price. Options are a product that is traded by both buyers and sellers. The mark price of the option is the one you see in your position statement most often. But, this may not be the actual ‘price’. This price can be thought of in several different ways. In this week’s article, we will look at the Bid/Ask spread, open interest, volume, and how these characteristics affect a trader’s decision-making. Options contracts are derivative products where their value is dependent on factors driven by the stock price, time til expiration, implied volatility and characteristics that are driven by the strike price you trade. Welcome back to the Options 101 series presented by Tackle Trading! In this series, I will examine some of the basic concepts that you need to understand as you start to trade options.
