# Options Prices

## Options Prices - Introduction

Options trading beginners were often baffled when it comes to reading options prices as there are three prices quoted for each options contract. The three options prices quoted are Bid price, Ask price and Last price. These different prices not only confuse complete beginners but also stock traders as well. Stock traders had a hard time with options prices as the bid, ask and last price of stock options can behave very differently from the ones in stock quotes. This tutorial shall explain what each of the three options prices mean and how they are different in behavior from the same three prices in stock quotes.

## Options Prices - Ask Price

Ask price is the price market makers or other options traders are asking for the options they own right now. This is the price other investors are trying to sell those options at, which makes it the price you would buy options at.

If you wish to buy options immediately, you would do so at the ask price.

 Options Prices Example : Assuming the following quote for June \$35 Call options of XYZ company: Bid : \$2.10 , Ask : \$2.40, Last : \$1.10 To buy these June \$35 Call options immediately, you would have to buy on its ask price of \$2.40.

## Options Prices - Bid Price

Bid price is the price market makers or other options traders are bidding for right now. This is the price other investors are trying to buy that option at, which makes it the price you would sell or short options at.

If you own options and wish to sell them immediately, you do so at the bid price.

 Options Prices Example : Assuming the following quote for June \$35 Call options of XYZ company: Bid : \$2.10 , Ask : \$2.40, Last : \$1.10 If you already own these June \$35 Call, you would be able to sell them immediately at its bid price of \$2.10.

 Buying on the Ask and selling on the Bid is the most basic knowledge any beginner options traders need to know.

## Options Prices - Last Price

 Options Prices Example : Assuming the following quote for June \$35 Call options of XYZ company: Bid : \$2.10 , Ask : \$2.40, Last : \$1.10 You will buy the June \$35 Call options at its ask price of \$2.40 and sell at its bid price of \$2.10. The last price of \$1.10 was the price it was last traded when the stock of XYZ company was much lower and does not affect any trading taking place right now.

As you would have learnt by now, the most useful pieces of pricing information for stock options are the Bid price and the Ask price. Another critical piece of information that can be derived from these two prices is the Bid Ask Spread.

 Options Prices Example : Assuming the following quote for June \$35 Call options of XYZ company: Bid : \$2.10 , Ask : \$2.40, Last : \$1.10 Bid ask spread is \$0.30 (\$2.40 - \$2.10). This means that for every contract you buy, you lose \$30 upfront due to bid ask spread loss. And you lose \$30 per contract before commissions should you buy the options and immediately sells them.

## Options Prices - Trading in Between The Bid And Ask Price?

Some of you may have tried successfully to sell or buy at a price in between the bid ask spread using a limit order, giving you a slightly better price than if you would obeying the bid and ask prices. This is known as to "bridge the bid ask spread". How does that happen?

Yes, sometimes when the option has good liquidity, market makers may be moved to fill the price that you set in between the existing bid and ask prices. However, that could result in no fill and you ultimately missing the entire trade for trying to save a few cents if the option is less liquid or simply no market makers are willing to pick your trade up at that price. That could result in you having to chase the price upwards and buy or sell at a worse price than if you would just trading at the previous existing bid or ask price. As such, you would need to be experienced and nimble enough in order to trade in between the bid and ask prices.

## Options Prices Questions

:: Who Is Bidding & Who Is Asking

:: Why Option Price Below Intrinsic Value?

:: Why Don't Options Have To Be Traded To Move?