The bid-ask spread is the difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller will accept (ask) for a security. In options trading, this spread is crucial as it directly influences trading costs and liquidity.
Factors like time to expiry, option liquidity, volatility, and trading volume affect the spread. A narrower spread indicates better liquidity and lower transaction costs, while a wider spread can signal higher costs and less favorable trade execution. Understanding these dynamics is essential for successful options trading.
