The bid-ask spread, quantified
The bid-ask spread is what you pay for immediacy: sell at the bid rather than the mid and the difference is gone, silently, with no line item anywhere. On a covered call rolled eight times a year it is the largest cost most sellers carry, and it is bigger than the commission by an order of magnitude.
Commissions get compared to three decimal places. The spread is five to twenty times larger and gets ignored, because nobody sends you a statement for it.
The position, and the bill
Short one CSCO April 17 $64 call against 100 shares. Stock $58.40, so $5,840 of capital. The market is $0.58 bid at $0.66 ask, mid $0.62, and the fair value from the model is $0.6255, near enough the mid.
Sell at the mid and you get $62. Sell at the bid and you get $58. The $4 difference is half the spread, and it is the fee.
Roll the position eight times a year and the gross income at the mid is $496, which on $5,840 is 8.5 percent. Now scale the fee.
| Spread, as % of mid | Market | Cost per contract | Per year, held to expiry | Share of the $496 |
|---|---|---|---|---|
| 3% | $0.61 / $0.63 | $1 | $8 | 1.6% |
| 6% | $0.60 / $0.64 | $2 | $16 | 3.2% |
| 13%, this contract | $0.58 / $0.66 | $4 | $32 | 6.5% |
| 25% | $0.54 / $0.70 | $8 | $64 | 12.9% |
| 50% | $0.47 / $0.78 | $16 | $128 | 25.8% |
The contract in the middle row passed a 15 percent spread filter without difficulty. It costs 6.5 percent of everything the strategy earns.
The bottom row is not a hypothetical. One candidate on the same screen quoted $0.20 bid at $0.40 ask, which is a 67 percent spread, worse than anything in the table.
Double it if you close early
Every figure above assumes you sell to open and let the contract expire, so you cross the spread once.
Buy to close and you cross it twice: sold at the bid, bought back at the ask. On this contract that is $8 a cycle rather than $4, and $64 a year rather than $32. Anyone running a 50 percent profit rule is doing exactly that, eight or more times a year, and the extra crossing is a cost the rule's advocates rarely price.
Which does not make the rule wrong. It makes it $32 a year more expensive than it looks on this position, and that belongs in the comparison.
Against the edge
This is where the numbers get uncomfortable.
The expected value page works out the entire theoretical edge in this trade: implied volatility running two points above realized is worth about $11 a contract, or $86 a year on this position.
| Item | Per year |
|---|---|
| Theoretical edge, 28% implied against 26% realized | +$86 |
| Spread at 13%, held to expiry | -$32 |
| Spread at 13%, closed early each cycle | -$64 |
| Spread at 25%, closed early each cycle | -$128 |
On a contract that passed every liquidity filter, executed carefully, the spread takes 37 percent of the edge. Manage the position actively and it takes 74 percent. Trade a name with a 25 percent spread and the edge is gone, then some.
That is the whole argument for caring about execution, and it is more persuasive than anything on the strike-selection pages. You cannot control what the stock does. You can control this.
Four things that shrink the bill
- Trade liquid underlyings. The single biggest lever, and it is free. XOM's chain quoted 3.8 percent on the same screen where PARA quoted 67 percent.
- Work the order. Start at the mid, walk in a penny at a time, set a floor before you begin. A cent is a dollar a contract and it is worth ten seconds. The mechanics of that are next door.
- Sell fewer, longer contracts. Four 90-day cycles cross the spread half as often as eight 45-day ones. It is a real saving against a real cost in flexibility.
- Let cheap contracts expire. Not always right, and it does save a crossing. Weigh it against the tail risk you are still carrying, which is the argument on the other side.
Why nobody counts it
Because it never appears. A commission shows up on the confirmation with its own line. The spread shows up as a slightly lower credit than the number you saw on the screen thirty seconds ago, and by the time the trade is on you have forgotten what that number was.
Try this once. Write down the mid before you send the order, then compare it to the fill. Do it for ten trades and total the difference. That figure is the fee, and for most people selling premium on mid-cap names it is the largest single cost in the strategy.
OptionsKing scores every candidate strike on a deterministic 0 to 100 scale, blends that score with the return on the capital the trade ties up, and shows you the highest-ranked handful. There is no minimum score. How it works covers what the ranking does and does not tell you.
Questions people actually ask
How much does the bid-ask spread cost on options?
Half the spread each time you cross it. On a worked covered call with a $0.58 bid and a $0.66 ask, selling at the bid rather than the mid costs $4 per contract, which is $32 a year across eight cycles, or 6.5 percent of the total credit collected.
Is the spread bigger than the commission?
Usually by a lot. A $0.65 per contract commission against a $4 spread cost is a factor of six on the same trade, and the spread scales with how illiquid the contract is while the commission does not.
Does closing early double the spread cost?
Yes. Selling to open and buying to close means crossing the spread twice. On the worked position that is $8 a cycle rather than $4, and $64 a year rather than $32, which is a real cost of any mechanical profit-taking rule.
How do I reduce what the spread costs me?
Trade liquid underlyings, which is the largest lever and it is free. Then work the order from the mid rather than hitting the bid, use fewer and longer cycles, and let cheap contracts expire instead of buying them back.
Sources
Rules and thresholds above were checked against these documents on August 4, 2026. Exchange and broker rules change. Confirm anything you are about to act on with your own broker.
Keep reading
Do the math on your own trade
Every price in this article is an illustrative worked example, not a quote. Read Screening and probability for the rest of the series, and the disclaimer before you act on any of it. Selling options carries real risk of loss, and the loss can be far larger than the premium you collected.