148  •   The Intelligent Option Investor
paragraphs. The easiest way to think of the bid-ask spread is to think in 
terms of buying a new car. If you buy a new car, you pay, let’s say, $20,000. 
This is the ask price. Y ou grab the keys, drive around the block, and 
return to the showroom offering to sell the car back to the dealership. The 
dealership buys it for $18,000. This is the bid price. The bid-ask spread is 
$2,000 in this example.
Bid-ask spreads are proportionally much larger for options than 
they are for stocks. For example, the options I’ve highlighted here are on 
a very large, important, and very liquid stock. The bid-ask spread on the 
$32-strike call option (which you will learn in the next section is exactly 
ATM) is $0.02 on a midprice of $1.09. This works out to a percentage bid-
ask spread of 1.8 percent. Compare this with the bid-ask spread on Ora-
cle’s stock itself, which was $0.01 on a midprice of $31.855—a percentage 
spread of 0.03 percent.
For smaller, less-liquid stocks, the percentage bid-ask spread is even 
larger. For instance, here is the option chain for Mueller Water (MW A):
2.5
5
7.5
10
Last
C5.30
C2.80
0.55
C0.00
Change Bid AskI mpl. Bid  Vol. Impl. Ask  Vol. Impl. Bid  Vol. Impl. Ask  Vol.Delta
2.5
5
7.5
10
2.5
5
7.5
10
12.5
DescriptionCall
Last Change BidA sk Delta
Put
C0.00
C0.00
C0.25
C2.25
C0.00
C0.00
C0.55
C2.35
C0.00
C0.10
C0.85
C2.55
C4.80
5.20 5.50 N/A 340.099% 0.9978
0.9978
0.7330
0.1316
0.9347
0.8524
0.6103
0.1516
0.9933
0.9190
0.6070
0.2566
0.1024
142.171%
46.039%
76.652%
N/A
N/A
2.95
0.55
0.10
0.20
0.10 N/A
N/A
N/A
0.10
0.30
2.35
40.733%
N/A
N/A
N/A
N/A
36.550%
38.181%
35.520%
35.509%
35.664%
2.10
0.50
0.05
0.10
0.60
2.402.30
0.05
0.15
0.15
0.85
2.60
4.90
0.70
2.45
4.60
2.70
0.500.00
5.20 5.50
3.00
0.90
0.20
2.80
0.80
0.10
5.505.10
3.102.85
1.151.05
0.400.30
0.200.05
39.708%
N/A
N/A
36.722%
N/A
38.754%
38.318%
39.127%
36.347%
36.336%
292.169% 0.0000
-0.0000
-0.2778
-0.8663
-0.0616
-0.1447
-0.3886
-0.8447
-0.0018
-0.0787
-0.3890
-0.7375
-0.8913
128.711%
53.108%
88.008%
117.369%
60.675%
42.433%
44.802%
110.810%
50.757%
42.074%
43.947%
49.401%
163.282%
75.219%
42.610%
45.215%
122.894%
64.543%
42.697%
44.728%
50.218%
C5.30
C2.80
C0.85
C0.10
C5.30
C1.10
C0.35
C0.10
3.00 +0.15
AUG 16 ´13
NOV 15 ´13
FEB 21 ´14
Looking at the closest to ATM call options for the November expiration—
the ones struck at $7.50 and circled in the screenshot—you can see that 
the bid-ask spread is $0.10 on a midprice of $0.85. This works out to 11.8 
percent.
Because the bid-ask spread is so very large on option contracts, 
round-tripping
1 an option contract creates a large hurdle that the returns 
of the security must get over before the investor makes any money. In the 
case of Mueller Water, the options one buys would have to change in price 
by 11.8 percent before the investor starts making any money at all. It is for 
this reason that I consider day trading in options and/or using complex