Trade execution in options is just like an equity, with a bid and ask, and a distance between the two, the bid/ask spread. But in options that bid/ask spread can sometimes be wider, or more illiquid than an equity. Those factors can compound in multi leg options trades, as the bid/ask spreads of each leg combine to create an even wider overall bid/ask spread for the entire trade package.

In addition to a sometimes wider bid/ask spread than a single leg trader is accustomed to, on a multi leg trade there may not be as much liquidity on the other side of the trade, and therefore some price discovery with the limit price may be in order to find where market makers are willing to execute the trade.

The easiest way to think about a limit price in an options trade, particularly multi-leg trades, is that you are much less likely to to be matched with a corresponding retail order on the other side, therefore your price discovery on your limit price is finding the point, either at the mid point or just past where market makers are willing to fill the order.

First though, the basics. When buying an option, or a debit spread, the ticket will autofill at the midpoint of the bid/ask spread. If it is submitted at that price may execute instantly, or it may not.

If it does not, the trader has a choice, to leave it as a working order until an order arrives from the other side to be paired, or the stock itself moves. If the trader wants to accelerate the process of being filled on the order, they can change the limit price. That price discovery process can be accomplished via incremental price changes to the limit, using the cancel/replace function.

On the options AI ticket a trader can see where the new limit price sits within the live bid/ask.

When opening a debit trade, increments would be towards the ask, when closing towards the bid. When opening a credit trade, increments would be towards the bid, and closing towards the ask.

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