You sold a call, checked the mid-price, felt good about the trade. Then the fill came in ten cents worse than you expected. That gap didn’t vanish into thin air — it went straight into someone else’s pocket. This is the quiet cost of market orders in options trading, and if you sell premium for a living or a side income, it’s eating more of your return than you think.
The Silent Tax Nobody Warns You About
Think of the bid-ask spread as a toll booth. Every time you use a market order, you pay whatever toll is posted — no negotiating. In stocks, that toll is often a penny. In options, especially on less liquid strikes, it can be twenty, thirty, even fifty cents wide.
On a $1.50 premium, a fifty-cent spread isn’t a rounding error. It’s a third of your trade, gone before the position even opens. Call it what it is: an option premium tax you’re choosing to pay.
Why Option Sellers Get Hit Harder Than Buyers
Buyers pay the spread once, going in. Sellers pay it twice — once to open, once to close. That’s the part beginners miss when they’re focused on collecting premium and forget they’ll eventually need to buy the position back.
You’re selling into the bid. Bid-ask spread options mechanics mean the bid is always the lower number. A market order guarantees you take that lower number, every single time, no exceptions.
So if the toll is doubled on the way in and the way out, why does anyone still use market orders?
The Objection: “But I Need the Fill Now”
Fair. Sometimes you do need speed — a fast-moving underlying, a position you must close before earnings, a gap risk you can’t sit through. Limit orders can go unfilled, and an unfilled order feels like a missed opportunity.
But here’s the trade-off nobody says out loud: an unfilled limit order costs you nothing. A filled market order at a bad price costs you real premium, permanently. One is a delay. The other is a loss you can’t undo.
A Worked Example: The Forty-Cent Gap
Say you’re selling a 45-day put, strike priced with a $2.20 bid and a $2.60 ask. The mid-price is $2.40. That’s your fair-value anchor.
- Market order: You sell at the bid, $2.20. You collect $220 per contract.
- Limit order at mid: You place it at $2.40, wait, and get filled twenty minutes later. You collect $240 per contract.
That’s a $20 difference on one contract. Run five contracts a week, most weeks of the year, and that “small” gap turns into thousands of dollars you simply gave away — not to the market, but to your own order type.
How to Actually Place the Limit Order
This isn’t about being clever. It’s about not volunteering to overpay. A few habits make the difference between fighting the spread and using it:
- Start your limit at the mid-price, not the bid. Let the market come to you first.
- If unfilled after a few minutes, walk the price down in small increments — a nickel or a dime — toward the bid.
- Never chase. If it’s not filling near mid, ask whether the trade is worth the spread at all.
- On wide spreads (anything over fifteen or twenty cents relative to premium), treat that width itself as a warning sign about liquidity.
None of this takes more than a few extra minutes. But those minutes are where your edge as an option seller actually lives — or quietly disappears.
The Liquidity Check Most Sellers Skip
Before you even build your limit order options trading habit, glance at open interest and daily volume on that strike. Thin liquidity means wide spreads, and wide spreads mean your limit order sits longer waiting for a counterparty.
Trading a liquid underlying with tight spreads makes limit orders almost effortless. Trading illiquid strikes turns every fill into a negotiation. Which kind of trade would you rather be running when the market gets volatile?
Building the Habit Without Overthinking It
You don’t need a complicated system here. You need one rule you actually follow every time you place a trade, without exception: no market orders on options, ever. That single rule, applied consistently, does more for your bottom line than most strategy tweaks combined.
The market orders vs limit orders decision isn’t really about being right on direction. It’s about not leaking money on execution before your thesis even gets a chance to play out.
The Takeaway
Every option seller loses some trades to the market — that’s the business. But losing premium to your own order type is optional, and it’s avoidable starting with your very next trade. Default to limit orders at the mid-price, be patient, and let the toll booth stay closed on your money.
Options selling carries real risk of loss, including the potential loss of the full premium collected or more depending on the strategy used. This article is for educational purposes only and is not personalised financial advice.
