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Equity and Index Options Explained by W. A. Beagles

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Preface: Trading Language and Products

The table below represents a simplified version of a trading screen, the sort of screen that a professional trader might use to view and to access the markets. The exact nature of the prices shown is irrelevant; the price could apply to a share or an index or a commodity, it really doesn't matter. What does matter is that we understand what the various numbers mean.

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Currently, the highest price at which anyone is prepared to buy is 4211. This is known as the bid. The best bid at the moment is 4211. If we look at the bid size, we can see that the bid is for a total of 220 units (shares, futures, options, it doesn't matter). This might be one person looking to buy 220 units, two people looking to buy 110 each, 220 different buyers, each wanting to buy 1 “lot” each, or any other combination that adds up to a total of 220. We really don't care how the “bid size” breaks down, it doesn't matter.

Currently, the lowest price at which anyone is prepared to sell is 4213. This is known as the offer or ask. The best offer at the moment is 4213. If we look at the offer size, we can see that the offer is in a total of 390 units (shares, futures, options, it doesn't matter). Again, this might be one person looking to sell 390 units, three people looking to sell 130, 390 different sellers, each wanting to sell one “lot” each, or any other combination that ...

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