What Is the Role of a Market Maker in Narrowing the Bid-Ask Spread?

Market makers play a crucial role by simultaneously placing both buy (bid) and sell (ask) orders for options contracts. They profit from the difference between the bid and ask prices (the spread).

By constantly quoting prices, they add liquidity to the market. Competition among market makers forces them to narrow their spreads to attract trades, which ultimately benefits all traders by reducing transaction costs and improving execution quality.