ETF option can vary from a couple cents to a bid vs ask price forex dollars these days. It’s important to remember that you don’t always have to pay the offer or sell the bid when you trade options. What is an options true value?
The primary obligation for market makers is to provide a liquid market and fill customer order flow. For every option buyer, there is a seller, and vice-versa. The market making firm is on the other side of your transaction. For example, if an option is bid 2.
So as a retail options trader, it’s in your best interest to narrow the spreads as much as possible. In this example if you paid 2. 25 — today you see 0. SPYders for example, a much better deal for retail investors. So it is even more important there to calculate a fair value and then work your order to not give up too much to those taking your trade. Let’s look at a recent case study example of this from the ETF Tradr service. In this situation, our 5 point debit spread was priced at 2.