A hands-on options curriculum covering real trading concepts. Read the lessons, work through examples, and test your knowledge.
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Key terms in this lesson
Lesson 1: 12.1: Order Flow Basics
Master the primary elements of the order book, spread, and matching priority.
1. Elements of the Order Book
The Limit Order Book (LOB) is a real-time list of resting buy and sell orders organized by price level. It consists of three primary components:
• The Bid: Resting buy limit orders. These represent the demand side of the market.
• The Ask (Offer): Resting sell limit orders. These represent the supply side.
• The Spread: The price difference between the highest bid (best bid) and the lowest ask (best ask).
2. Price-Time Priority Rule
Exchanges match orders based on strict priority rules:
• Price Priority: Orders offering the best price (highest buy bid or lowest sell ask) are always executed first.
• Time Priority: If multiple resting orders are placed at the identical price, the order that was submitted first gets filled first.
★ Execution Key: Professional order flow traders use high-speed connections to secure time-priority placement in high-volume queues.
Click to enlargeOptions Structure Exploration
Options are contracts cleared in the bid-ask auction market. Interact with the Order Book below to understand how buy offers (bids) and sell offers (asks) intersect, and inspect the structural breakdown between Call and Put contracts.
Limit Order Book & Spread Interface
Hover over ASK or BID to dissect the auction market dynamics.
Right to Buy
- Outlook: Bullish (Goes up)
- Risk: Capped to premium paid
- Profit: Scales as stock surges
Right to Sell
- Outlook: Bearish (Goes down)
- Risk: Capped to premium paid
- Profit: Scales as stock falls
KNOWLEDGE RECONNAISSANCE
How is the Bid-Ask Spread defined?
More lessons in this module
- 12.0: Introduction to Order Flow
- 12.2: Bid vs. Ask Mechanics
- 12.3: Market Orders
- 12.4: Limit Orders
- 12.5: Footprint Charts
- 12.6: Delta
- 12.7: Absorption
- 12.8: Order Flow Trading Strategies
Signal Desk is where you practice this on real stocks: real option chains (about 15 minutes delayed), the Trade Check and a paper-trading account that risks no real money. Join to add it, your progress tracking and PDF downloads.