How the bid-ask spread affects a trade

Compare fills with a stated reference price, calculate a round-trip execution effect, and avoid subtracting the same cost twice.

By OptionsKing. Publisher and editorial methods.

A midpoint is a reference

The bid is a displayed buying price and the ask a displayed selling price. Their average is the midpoint. An investor selling immediately may trade near the bid, while one buying immediately may trade near the ask. Actual execution depends on available quotes, size, routing, and order instructions; neither the quoted side nor the midpoint is a guaranteed fill.

Suppose a fictional Harbor option has a $1.90 bid and a $2.10 ask. Its midpoint is $2.00. Selling one standard contract at $1.90 brings in $190, which is $10 less than selling at the midpoint. The full quoted spread is $0.20 per share, or $20 per contract.

Follow both transactions

Assume the quote stays exactly the same and you immediately buy back the contract at $2.10. The opening credit is $190 and the closing payment is $210. Your round-trip result is a $20 loss before commissions and fees. In this deliberately static example, each transaction is $10 away from midpoint.

This does not mean every trade costs one full opening spread. The closing quote will usually differ, a limit order may receive price improvement or no fill, and market movement can dominate the result. Estimate the opening and closing effects separately when comparing a strategy with hypothetical midpoint prices.

Do not double-count the spread

Now imagine a different closing market where you actually buy back the option for $1.10. The fill-based option profit is ($1.90 − $1.10) x 100 = $80 before fees. If total commissions and fees are $2, net profit is $78. Do not subtract another $20 spread estimate from this result: actual execution prices already include their effect.

A backtest that assumes all trades fill at midpoints needs a realistic execution adjustment. A ledger using actual fills needs accurate fees and financing entries, not a duplicate adjustment. State which basis you are using so that a comparison of trades is meaningful.

Sources

• OIC, Trade Entry and Execution

Rules and thresholds above were checked against these documents on October 21, 2026. Exchange and broker rules change. Confirm anything you are about to act on with your own broker.

Keep reading

• What affects whether an option order fills
• Checking option liquidity
• Expected value: combine probabilities and payoffs

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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.