KEY UNDERSTANDINGS

This is going to be a growing list of important options terms and pieces of information that are vital to making choices that will provide you the most protection and profit.

Limit Price - When you look at the price of an option by clicking on the cost, $9.13 ($9.13 x 100 = $913) in this example, it will bring up a buying menu for that option.  On this page, you will see "Limit Price" and it will have a Bid $8.50 and Ask $9.75, if you click on that, it will take you to further information. 

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The Bid - This number represents how much an individual is willing to PAY for these calls.  In the example at $8.50 bid x 237, that means someone is willing to buy 237 contracts at $850 each (237 x $840 = $201,450). 

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The Ask - This number represents how much an individual is willing to SELL their contracts for. In the example at $9.75 x 53, that means someone is willing to sell 53 of these calls at $9.75 each (53 x $975 = $51,675).  

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The Spread - When people talk about the spread, they are referring to the difference between the Bid and the Ask we just defined above.  The larger the difference between the Bid and Ask, the more volatile those options are, thus making them more risky.  The Ask above is $9.75 and the Bid is $8.50, making the spread $975-$850 = $125.  That is a wide spread, making it hard to accurately price these options.  When you trade something more active, like the SPY for example, spreads will be much tighter.   

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In this example, the spread is only $10, with the Ask being $4.02 ($4.02 x 100 = $402) and the Bid being $3.92 ($3.92 x 100 = $392).  This allows you to more accurately price your options if you want to buy or sell, or consider a spread.