Covered Call Bid-Ask Spread Too Wide? Here's How to Get a Fair Fill

The Short Answer: Use a Limit Order at the Midpoint and Work Inward

When the bid-ask spread on your covered call is too wide to get a fair fill, place a limit order at the midpoint between the bid and the ask, then adjust by one cent at a time toward the bid until you get filled. Never hit the bid outright on a wide-spread option — you hand free money to the market maker. Patience and a disciplined limit-order strategy almost always get you a better price than a market order.

Why Covered Call Spreads Get Wide in the First Place

A bid-ask spread is the gap between what a buyer will pay and what a seller wants. Market makers set that gap based on risk. The wider the spread, the more cushion they need to hedge their position.

Four things drive wide spreads on covered calls:

1. Low open interest and low volume. If fewer than a few hundred contracts trade on that strike each day, market makers widen the spread to compensate for the risk of being stuck in a position they cannot easily exit.

2. High implied volatility (IV). When IV spikes — think earnings week or a macro event — market makers widen spreads because the underlying can move sharply before they can re-hedge.

3. Far out-of-the-money or deep in-the-money strikes. These strikes trade less frequently, so liquidity dries up and spreads balloon.

4. Small-cap or thinly traded underlyings. A stock with average daily volume under 500,000 shares will almost always have illiquid options. The Options Industry Council (OIC) specifically flags liquidity as a key factor retail traders should check before entering any options position.

Understanding the cause helps you pick the right fix.

How to Read the Spread Before You Place Your Order

Before you do anything, look at three numbers: the bid, the ask, and the last trade price. Then calculate the midpoint.

Worked example — AAPL covered call:

Suppose Apple (AAPL) is trading at $213.50. You own 100 shares and want to sell the 30-day $220 call. Your broker's option chain shows:

- Bid: $1.85 - Ask: $2.45 - Last trade: $2.10 - Open interest: 1,840 contracts

The spread here is $0.60 wide — that is 24% of the ask price. On one contract (100 shares) that $0.60 gap equals $60 of potential slippage. The midpoint is ($1.85 + $2.45) ÷ 2 = $2.15.

Your starting limit order should be $2.15. If you do not get filled in 2-3 minutes during normal market hours, drop to $2.10, then $2.05, and so on. Most retail traders get filled within $0.05 to $0.10 of the midpoint on a liquid name like AAPL during regular hours.

Now compare that to a thinly traded small-cap where the bid is $0.50 and the ask is $1.40. The midpoint is $0.95, but the spread is $0.90 — 95% of the bid. That is a warning sign. On a spread that wide, you may want to reconsider the trade entirely or switch to a more liquid strike.

Six Tactics to Get a Better Fill on a Wide Spread

1. Start at the midpoint, work toward the bid in $0.05 increments. This is the core tactic. Give each price level 2-5 minutes before adjusting. Do not rush. Market makers watch order flow and will often meet you partway.

2. Trade during peak liquidity hours. Options volume is heaviest in the first 90 minutes after the open (9:30–11:00 a.m. ET) and the last hour before the close (3:00–4:00 p.m. ET). Spreads tighten when more participants are active. Avoid placing orders in the first 5-10 minutes of the session — spreads are often widest right at the open.

3. Choose strikes with higher open interest. On AAPL's option chain, the at-the-money (ATM) strike and the first two out-of-the-money strikes typically carry the most open interest and the tightest spreads. A strike with 5,000+ contracts of open interest will almost always fill closer to mid than a strike with 200 contracts.

4. Move to a nearby strike with better liquidity. If the $220 strike has a $0.60 spread but the $222.50 strike has a $0.20 spread, the $222.50 may be the smarter sell even if the premium is slightly lower. The net proceeds after slippage can actually be higher.

5. Use a net-credit limit order on multi-leg trades. If you are rolling a covered call (buying back the old call and selling a new one simultaneously), use your broker's spread order ticket and set a net credit limit. FINRA Rule 4210 governs margin on options positions, and using a spread order keeps your margin treatment clean while also giving you one price to negotiate instead of two.

6. Check the underlying's average daily volume before you sell. As a rule of thumb, look for underlyings with at least 1 million shares of average daily volume and options with at least 500 contracts of open interest at your target strike. The OIC recommends checking both metrics as part of pre-trade due diligence.

What Are the Real Risks of Trading Wide-Spread Options?

Wide spreads are not just an annoyance — they carry real financial risk that covered call sellers need to understand honestly.

Slippage compounds over time. If you sell 12 covered calls per year and lose $0.20 per contract to slippage on each trade, that is $240 per year per 100-share position. On a $5,000 position, that is a 4.8% drag before you count commissions.

You may not be able to close the position at a fair price. If your covered call goes deep in the money and you want to buy it back to avoid assignment, a wide spread means you pay a steep price to exit. The same spread that cost you $0.60 on entry can cost you $0.60 or more on exit — a round-trip slippage cost of $120 per contract.

Illiquid options can have stale quotes. On low-volume strikes, the displayed bid and ask may not reflect where the market actually is. The last trade price is often a better anchor than the current quote in those cases.

Tax treatment is not affected by spread width, but the IRS and CRA both require you to report the actual proceeds you received — not the midpoint. Canadian investors should note that the Canada Revenue Agency (CRA) treats covered call premiums as capital gains or income depending on your trading frequency and intent, regardless of how wide the spread was.

Bottom line: if the spread is so wide that you cannot get filled within $0.15 of mid after several attempts, the market is telling you something. Either the strike is wrong, the timing is wrong, or the underlying is too illiquid for a covered call strategy.

When Should You Just Walk Away From the Trade?

Not every covered call is worth selling. Here are three clear signals to skip the trade and wait for better conditions:

Signal 1 — The spread is more than 20% of the ask price. On a $1.00 ask with a $0.80 bid, you are looking at a 20-cent spread on a one-dollar option. That is a 20% friction cost before the trade even starts. The premium has to be exceptional to justify it.

Signal 2 — Open interest at your target strike is under 100 contracts. This means almost no one is trading that strike. You may get filled, but closing the position later will be painful.

Signal 3 — You are trying to trade within 30 minutes of a major economic release or earnings announcement. Spreads widen dramatically around scheduled events. The CBOE tracks implied volatility through the VIX, and when VIX spikes, every options spread in the market gets wider. Wait until after the event if you want tighter fills.

If any two of these three signals are present at the same time, the smart move is to wait. There will be another expiration cycle, another strike, and another day with better liquidity.

A Quick Checklist Before You Place Your Next Covered Call Order

Run through this list before you hit submit:

- Underlying average daily volume: 1 million shares or more? ✓ - Target strike open interest: 500 contracts or more? ✓ - Current spread width: less than 15% of the ask? ✓ - Time of day: between 10:00 a.m. and 3:00 p.m. ET? ✓ - Order type: limit order at the midpoint? ✓ - Any earnings or major macro events in the next 5 trading days? If yes, reconsider. ✓

If you check all six boxes, place your midpoint limit order and work it patiently. If you miss two or more, consider waiting or switching to a more liquid strike or expiration. The OIC offers free educational resources on options liquidity that are worth reviewing if you are newer to covered call trading.

What is a good bid-ask spread for a covered call?

A spread of $0.05 to $0.15 is considered tight and easy to work with on liquid names like AAPL, MSFT, or SPY. Anything wider than $0.30 on a low-priced option or more than 15% of the ask price on any option deserves extra caution. The tighter the spread, the closer to fair value you can expect to get filled.

Should I ever use a market order to sell a covered call?

Almost never. A market order on a wide-spread option guarantees you get filled at the bid — the worst possible price for a seller. FINRA and the OIC both recommend limit orders for options trades, especially in less liquid contracts. The only exception might be a deep in-the-money call with a $0.01 spread, but even then a limit order costs you nothing extra.

Why is the bid-ask spread on my covered call so much wider than on the stock itself?

Options are less liquid than stocks by nature — there are dozens of strike and expiration combinations splitting the volume across many contracts. Market makers also carry more hedging risk on options than on shares, so they charge a wider spread as compensation. The OIC explains that options market makers must continuously hedge their delta exposure, which adds cost that gets passed on through the spread.

Does the bid-ask spread affect my covered call premium income?

Yes, directly. If you sell at the midpoint instead of the bid, you collect more premium on every trade. Over a full year of monthly covered calls, the difference between consistently hitting the bid versus trading near the midpoint can easily add up to several hundred dollars per position. Treat spread management as part of your income strategy, not an afterthought.

What time of day has the tightest bid-ask spreads for options?

Options spreads are generally tightest between 10:00 a.m. and 3:00 p.m. ET, after the opening volatility settles and before end-of-day positioning begins. The first and last 15 minutes of the trading session typically have the widest spreads. The CBOE notes that volume and liquidity peak in the mid-morning window on most equity options.

How does a wide spread affect me if I need to buy back my covered call early?

When you buy back a covered call, you pay the ask — the higher end of the spread. If the spread was wide when you sold and is still wide when you buy back, you face slippage costs on both legs of the trade. On a $0.60-wide spread, a round-trip could cost you $120 per contract in slippage alone, which can wipe out a significant portion of the premium you collected.