How Does the Bid-Offer Spread Relate to the Premium of an Options Contract? ▴ Learn

How Does the Bid-Offer Spread Relate to the Premium of an Options Contract?

The premium of an options contract is the price paid by the buyer to the seller. Like any traded asset, this premium has a bid and an offer price, creating a spread.

The spread on an options premium reflects the liquidity of that specific contract. Less liquid, out-of-the-money options often have wider spreads than highly traded, at-the-money options.

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