An option ask is the price an option seller wants to receive for the option. If the option is fairly ill liquid, and less than 100 option contracts have traded that day, the ask is also referred to as the offer and it is likely to be a Market Maker. It is easy to get angry at the Market Makers because you don’t like their market, but remember without them there would not be an offer and you could not buy the option. Their job is to buy bids and sell offers. They hedge all of their positions and they have auto quote systems that dynamically update the market for each particular stock-option. Market Makers are required to make a 10-up market. That means that the bid and the ask are good for at least 10 contracts. Stocks that trade actively often have good option liquidity. In these situations the offer might be another trader who is looking to sell the stock option. You can often purchase the stock option for a nickel or dime less than the offer and I suggest trying that first. If you don’t get filled right away, cancel the order and pay the asking price.
December 2, 2008
Archives March 1, 2007