Nobody likes a great dinner better than I do. The problem is how to pay for it. I’m not talking about a dark meat combo at KFC, I’m talking about a great steak and a bottle of wine with my sweetheart. A nice $100 Saturday night celebration. Well I found a great way to easily grab a $100 for dinner every month, and I wanted to share it with you.
If you trade options every month, you may be leaving money on the table. Over the course of the month, that money could easily be $100. With hardly any work, you can end up with a nice dinner on the house every month. Here’s how it works.
For every option and stock, there is the price at which someone is willing to buy, and the price at which someone is willing to sell. You buy at the ask price and you sell at the bid price.
But are those prices fixed, or are they negotiable? Very negotiable. It’s an auction. If the volume of stock is very high, the spread between the bid and the ask prices will be small. But for options, where the volume is much smaller, the bid/ask spread could be wide – easily 10 cents or 20 cents or more.
Here’s an example. At the time of this writing, a June 150 Call option on BIDU has a bid price of $11.30 and an ask price of $11.50. Some has declared that they are willing to buy the option for $11.30, and someone else has said they are willing to sell the option at $11.50. You could place a market order and you would get that option at $11.50. But don’t you think that person would have let you have it for less? Almost always.
Whenever you buy or sell an option, use a limit order. Start your negotiation at the mid-point between the bid and the ask prices. You will usually get your trade. In this case, if you place a limit order for $11.40, you will likely get filled. If not, try $11.45, and you will most certainly get filled. Every time you shave a dime off of the bid price, you save $10. Do this on a 10-option lot, and that’s $100. And that’s enough to get you and your honey a nice dinner out.