What Is the “Mid-Price” of an Option and Why Is It Often Used as a Benchmark?

The mid-price is the average of the best bid and the best ask prices for an option contract. It is often used as a theoretical fair value or a benchmark because it splits the bid-ask spread.

Traders aiming to get a better execution price than a market order often place limit orders at or near the mid-price, hoping to get filled by a market maker. The difference between the mid-price and the actual execution price is a common way to measure execution quality.