How Does a Minimum RFQ Size Affect the Bid-Ask Spread for an Option?

A minimum RFQ size typically leads to a tighter bid-ask spread for the option. By requiring a larger trade size, the market maker can capture a larger total premium, which justifies offering a more competitive, tighter spread to win the trade.

It signals that the market maker is dealing with a serious order, allowing them to optimize their hedging strategy for efficiency.