In Options Trading, What Is the Role of the “Bid-Ask Spread”?

The bid-ask spread is the difference between the highest price a buyer is willing to pay (the bid) and the lowest price a seller is willing to accept (the ask). It represents the cost of immediacy for a market order and is a source of profit for market makers.

A wider spread indicates lower liquidity and higher transaction costs for the trader. Narrow spreads are characteristic of highly liquid options.