With options trading the bid/ask spread takes on more importance than it generally does with stocks. There are a couple of reasons for this, but first let's consider how an option trade is made.

When you decide you want to buy ADBE $620 call options expiring a month from now, you have to realize that that's sort of an obscure idea. More than likely there isn't another retail trader like you sitting at home thinking to himself, "What I'd really like to be doing right this very minute, with all of the thousands of stocks available to me, is to be selling an ADBE $620 call expiring next month."

No, the odds of that happening are extremely slim. If the stock market relied on that chance encounter happening, no trades would ever get done. So options have what are called market makers, and as their name implies, their duty is to ensure a fair and orderly market by providing liquidity to the assets that they are in charge of.

So, in our example, there is a market maker for ADBE options that is sitting at a screen and constantly updating the option chain with both bids and asks on all the different strike prices and expiration dates. Remember, importantly, that his/her job is not to give you a great deal, it's simply to offer you a price that you can buy, or a price that you can sell at. They provided you a market to shop at or sell your goods. In stocks without much interest the bid/ask spreads will be quite wide, while stocks with more interest will have tighter spreads.

I was an options trader in Chicago. My job as an independent trader was to provide liquidity to the options market on the floor of the Chicago Board of Trade. When a farmer in Iowa called his broker in Chicago and asked what price he could trade the Soybean November $450 calls at, his broker would yell out into a sea of traders, "Nov $450 calls!" and we would immediately reply by yelling out two prices, a bid and an ask, "$2.20, 2.40!" He would relay that to the farmer who might then tell him to sell 100 contracts at $2.30. Remember, we didn't know beforehand if we would be buying or selling, we just made a market for the option. Now, when the broker yells to us that he'll sell 100 at $2.30, we'd have a tighter market. There would be our bid at $2.20 and the farmer's ask at $2.30. At this point, we could either choose to buy those at $2.30, to raise our bid, or to do nothing. In the meantime, a third party could enter the fray, say a farmer in Brazil who saw the $2.30 ask pop up on the quote board. He calls his broker and tells him to buy at $2.30. And with that, a trade is made.

Today, this is all done on the computer in fractions of a second. But there still has to be at least one person, the market maker, who is willing to take either side of a trade for a certain price. Without that market maker, most stock's options chains would remain empty all day long.

One last point to keep in mind is that the market maker doesn't have a preference for whether the stock goes up or down. He will take either side of the trade. In order to do this he hedges his trades. If he sells you calls, he turns around and buys an amount of stock that will offset the risk of those calls. That is called hedging. But if all he is doing is hedging his risk so that there is virtually no risk, how does he make money? Well, it all comes back to that bid/ask spread. If the mid-price is the actual fair value price (it isn't necessarily, but for our purposes we'll assume it is), then any price he pays below that value, or sells above that value, will essentially be his profit.

Okay, now that we've established that options trading requires a market maker in order for you to show up out of the blue and buy some obscure option, and we understand that this person's job is not purely altruistic, let's figure out why this is important.