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How the bid-ask spread taxes option sellers

Every time you sell an option, close it or roll it, you cross the bid-ask spread. On a liquid stock that's pennies. On a thin one it can take a third of the premium, and a losing trade pays it three times.

Options guide · 8-minute read · Updated 2026-10-26

What the spread costs you, in one line

The bid is what buyers will pay right now. The ask is what sellers want. The gap between them is the spread, and as a seller you give up roughly half of it every time you trade. Sell to open, you get near the bid. Buy to close, you pay near the ask. Roll, and you do both.

That's a cost that never shows on your statement as a fee. It shows up as a slightly worse price, every single time. Over a year of running the wheel strategy, it adds up to real money.

How to measure it on any quote

Three numbers from the Options chain:

1. Spread in dollars = ask − bid. A put quoted $0.95 bid / $1.05 ask has a $0.10 spread, or $10 per contract.
2. Spread as a share of the premium = spread ÷ mid. $0.10 ÷ $1.00 = 10%.
3. Round-trip cost = the full spread, if you sell at the bid and later buy back at the ask. One crossing each way.

If you sell and let the option expire worthless, you cross once. If you close early or roll, you cross twice or three times. Each crossing costs about half the spread, so a round trip costs about the whole spread.

Most sellers work orders near the mid and get part of the spread back. The mid price, and why sellers work the order covers that. On a thin chain, though, the mid is a hope and the bid is reality.

Tight stock versus thin stock

Same premium, two different chains. Hypothetical quotes.

On the thin stock, a trade where the stock does nothing and you close early at the same mid still loses $40. The spread did that. Twelve cycles of that, one contract, is $480 given to the market for nothing.

A worked example where the spread eats a loss (an illustration, not a trade idea)

Here is the losing version, on the thin stock. XYZ trades at $50.

Step 1. You sell one 30-day $45 put. Quote: $0.80 / $1.20. Your mid-price order doesn't fill, so you hit the bid. You collect $80.

Step 2. Two weeks later XYZ drops to $44. The put is now $1.80 / $2.20. You decide to close. Nobody meets you at the mid. You pay the ask: $220. Loss on the option so far: −$140. At mid prices, the same move would have cost $100.

Step 3. You roll out a month, same strike. The new put is $2.40 / $2.80. You sell at the bid: $240. Net credit on the roll: $20.

Step 4. XYZ keeps falling. At the new expiry it's $38. You're assigned at $45.

The stock did the damage. But the spread took another $60 on the way down, across three crossings. That's 60% of the premium you ended up keeping. On the liquid stock, the same three crossings would have cost about $15.

Where the spread hides

• Rolls count twice. A roll is a buy-to-close and a sell-to-open in one ticket. You cross the spread on both legs, even if the ticket shows one net credit.
• Wide strikes, wide spreads. Strikes far from the price often have fewer quotes and bigger gaps. The cheap, far-out put with a $0.10 bid and $0.30 ask has a spread as big as its whole mid: 100%.
• The last hour and the open. Spreads tend to widen when the market is fast. A fill at 9:31 can cost more than the same order at 10:30.
• Low Open interest. A strike with a handful of open contracts has fewer people to trade with. Check the OI column, not just the bid and ask.
• Painted quotes. On quiet strikes, the displayed bid can be a market maker's placeholder. The real price is somewhere inside it, but you only find out by working the order.

Option chain columns for sellers shows which columns reveal all of this, and checking option liquidity turns it into a simple pass/fail before you sell.

A rule you can apply today

Before you sell, divide the spread by the mid. Then decide:

Write the spread on your ticket next to the premium, the way you'd write a commission. If you collected $80 and the round trip costs $40, you didn't sell an $80 put. You sold a $40 one that looks like $80 until you need to leave.

Try it on paper: open the chain on two stocks, one big and one small, and compare the spread as a share of the mid at the same Delta. The difference is the tax. Reading an options quote explains each number on the quote line.

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