In Options Trading, How Does the Bid-Ask Spread Relate to Potential Slippage? ⎊ Path

In Options Trading, How Does the Bid-Ask Spread Relate to Potential Slippage?

The bid-ask spread in options is the difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask). This spread represents the immediate cost of a market order and is a form of guaranteed slippage compared to the mid-price.

Wide spreads, common for illiquid options, mean higher potential slippage for market orders. To minimize this, traders often use limit orders set within the spread, accepting a lower chance of immediate execution.

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Protection ⎊ Guaranteed slippage represents a form of execution protection offered by certain liquidity providers or decentralized exchanges, assuring the trader that the final fill price will not deviate beyond a specified maximum tolerance from the price quoted at the time of order submission.