π°Clarifying Confusing Concepts
We will be discussing the following concepts in detail in the next section.
Difference between Volume, Daily Volume, Size, and Trade?
Volume
The total number of contracts traded for a specific option (call or put) in a given period (usually a day).
Example: If 500 contracts of a Tesla $200 Call option are traded today, its volume is 500.
Often referred to as Daily Volume when measured per trading day.
Daily Volume
The same as Volume, but explicitly measured for one trading day.
Helps traders gauge liquidity and interest in an option.
Size
The number of contracts involved in a single trade.
Example: If a trader buys 50 contracts of an Apple $150 Put in one order, the size is 50.
Sometimes displayed in Time & Sales data as part of a trade execution.
Trade
A single transaction (buy or sell) of an option contract.
Each trade has:
A price (premium paid/received)
A size (number of contracts)
A timestamp (when it occurred)
Example: Buying 10 contracts of NVIDIA $500 Calls at $2.00 is one trade with a size of 10.
Key Differences Summary
Volume
Total contracts traded for an option in a period (e.g., a day)
1,000 contracts traded today
Daily Volume
Same as Volume, but explicitly for one trading day
Todayβs volume: 1,000
Size
Number of contracts in a single trade
A trade with size 100 means 100 contracts were bought/sold at once
Trade
A single transaction (buy/sell) of an option
A market order executes as one trade with a specific size
Why It Matters
Volume/Daily Volume β Shows liquidity and trader interest.
Size β Indicates whether large players are active (block trades).
Trade β Helps analyze execution quality (e.g., fill price).
AASK vs. ASK, BBID vs. BID
BID (Best Bid) vs. BBID (Bid-Bid Spread)
BID β The highest price a buyer is willing to pay for an option.
Example: If the best bid for a SPY $500 Call is $2.00, thatβs the BID.
BBID β The bid-bid spread (less common term) could refer to:
The difference between two bid prices (e.g., top bid vs. next bid).
Sometimes used in Level 2 data to show multiple bid levels.
Example:
Bid 1: $2.00 (100 contracts)
Bid 2: $1.95 (50 contracts)
The BBID spread here is $0.05 between the two bids.
ASK (Best Ask) vs. AASK (Ask-Ask Spread)
ASK β The lowest price a seller is willing to accept for an option.
Example: If the best ask for a SPY $500 Call is $2.10, thatβs the ASK.
AASK β The ask-ask spread (less common term) could mean:
The difference between two ask prices (e.g., top ask vs. next ask).
Used in Level 2 data to show multiple ask levels.
Example:
Ask 1: $2.10 (100 contracts)
Ask 2: $2.15 (50 contracts)
The AASK spread here is $0.05 between the two asks.
Key Differences Summary
BID
Best (highest) price buyers are offering
$2.00 (top bid)
BBID
Bid-bid spread (difference between bid levels)
$2.00 (Bid 1) vs. $1.95 (Bid 2) β BBID = $0.05
ASK
Best (lowest) price sellers are asking
$2.10 (top ask)
AASK
Ask-ask spread (difference between ask levels)
$2.10 (Ask 1) vs. $2.15 (Ask 2) β AASK = $0.05
Why It Matters?
BID/ASK β Determine the current market price and spread (liquidity check).
BBID/AASK β Show depth of market (Level 2 data) and potential price pressure.
Tight BBID/AASK spreads β More liquidity.
Large gaps β Slippage risk.
Sell/Buy and Open/Close
Buy vs. Sell
Buy (Long) β Purchasing an option (call or put) to open a new position or close an existing short position.
Buy to Open (BTO) β Entering a new long position.
Example: Buying 1 SPY $500 Call (you now own the right to buy SPY at $500).
Buy to Close (BTC) β Exiting a short position (buying back an option you previously sold).
Example: You had sold a TSLA $200 Put; now you buy it back to exit.
Sell (Short) β Selling/writing an option to open a short position or close an existing long position.
Sell to Open (STO) β Opening a new short position (you collect premium but take on obligation).
Example: Selling 1 NVDA $150 Put (you must buy NVDA at $150 if assigned).
Sell to Close (STC) β Exiting a long position (selling an option you previously bought).
Example: You had bought an AAPL $180 Call; now you sell it to lock in profit/loss.
Open vs. Close
Open β Initiating a new position (increases your exposure).
Buy to Open (BTO) β Starting a long option position.
Sell to Open (STO) β Starting a short option position (writing options).
Close β Exiting an existing position (reduces your exposure).
Buy to Close (BTC) β Covering a short position.
Sell to Close (STC) β Selling a long position.
Key Scenarios & Examples
Buy to Open (BTO)
New long position
Buying 1 AMZN $180 Call (hoping AMZN rises)
Sell to Open (STO)
New short position
Selling 1 MSFT $400 Put (obligated to buy MSFT at $400 if assigned)
Buy to Close (BTC)
Exit short position
You sold a GOOGL Call; now buying it back to avoid assignment
Sell to Close (STC)
Exit long position
You bought a META Put; now selling it to take profits
Why It Matters?
Opening Trades (BTO/STO) β Defines your risk/reward (long = limited risk; short = unlimited/defined risk).
Closing Trades (BTC/STC) β Locks in profits/losses and avoids assignment (for short positions).
Assignment Risk β Short options (STO) may force you to buy/sell the underlying stock if held to expiration.
Common Mistakes to Avoid
Accidentally opening instead of closing β Selling a call when you meant to close a long call could leave you short (naked if uncovered).
Forgetting to close short options β Could lead to unwanted stock positions at expiration.
Ignoring fees β Frequent opening/closing increases transaction costs.
Would you like a breakdown of how these apply to specific strategies (e.g., spreads, covered calls)?
Last updated