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Advanced Option Lessons

A hands-on options curriculum covering real trading concepts. Read the lessons, work through examples, and test your knowledge.

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Module 12: Order FlowAdvanced 15 Min

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.

An order book with bids in green on the left and asks in red on the right, with the best bid, best ask and spread marked
An order book: bids on the left (green) and asks on the right (red), ordered by price. The best bid is 101 and the best ask is 102, so the spread is 102 − 101 = 1. Exact matching priority depends on the venue, and hidden liquidity is not shown. Illustrative data.
Interactive Option Simulation Lab

Options Structure Exploration

LAB SIMULATOR ACTIVE

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
SELLERS (ASK)$2.1523 Contracts
$2.12 | 15 Contracts
BID-ASK SPREAD: $0.10
Mid-Price: $2.10
$2.08 | 41 Contracts
BUYERS (BID)$2.0554 Contracts

Hover over ASK or BID to dissect the auction market dynamics.

CALL OPTION
Right to Buy
  • Outlook: Bullish (Goes up)
  • Risk: Capped to premium paid
  • Profit: Scales as stock surges
Delta: Positive (0.00 to +1.00)
PUT OPTION
Right to Sell
  • Outlook: Bearish (Goes down)
  • Risk: Capped to premium paid
  • Profit: Scales as stock falls
Delta: Negative (0.00 to -1.00)

KNOWLEDGE RECONNAISSANCE

Q01.

How is the Bid-Ask Spread defined?

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.

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