Quote spreads and slippage

I was looking at the cost of trading spreads this morning as I lamented the loss of the quote spreads. On today's trade there was 4 cents left due to the bid ask spreads on both the buy and sell legs of the spread order I placed.

$16 for the entire trade.

Well, so what?

When I buy at the ask and sell at the bid and if I have to turn around and close the trade by selling my long option at the bid and buying the short at the ask, I double this cost of trading.

Considering that the commissions are $17.95 for the 4 contract spread, the opening bid ask spread is $16, should I close the trade another $17.95 and another $16 for the bid ask spread again...that makes $67.90 to open and close the trade in direct and indirect losses.

That certainly needs to be considered in the mix when it comes time to think about how to close. Letting the trade expire is obviously the best most cost effective method as it cuts this cost in half but is not always going to be an option.

Considering that the total possible loss of a spread trade is much higher than the value of the trade by about one order of magnitude taking this additional cost is a small price to pay to exit a potentially losing trade.

This is why I am concerned with the space I allow between the stock price and the spread strike. The more space that still allows me to see my minimum profit target, the better.

Jeff.