A hands-on options curriculum covering real trading concepts. Read the lessons, work through examples, and test your knowledge.
OVERALL ACADEMY PROGRESS
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Key terms in this lesson
Lesson 2: 12.2: Bid vs. Ask Mechanics
Analyze how aggressive market buyers and sellers interact with the two sides of the order book.
1. The Interaction Paradigm
In an order book, trades can only occur when an aggressive trader crosses the spread to transact with a passive resting limit order.
• Aggressive Buyers: Use market buy orders to execute immediately against resting sell limit orders at the Ask.
• Aggressive Sellers: Use market sell orders to execute immediately against resting buy limit orders at the Bid.
★ Microstructure Law: Buy market orders match against the Ask; sell market orders match against the Bid.
2. Reading Order Crossings
Order flow charts and footprints record these crossings diagonally:
A transaction on the Ask side represents active buying pressure (buyers lifting the offer). A transaction on the Bid side represents active selling pressure (sellers hitting the bid).
Analyzing the intensity and size of these crossings reveals which side is actively driving the auction.
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
When an aggressive trader submits a market sell order, which side of the order book does it execute against?
More lessons in this module
- 12.0: Introduction to Order Flow
- 12.1: Order Flow Basics
- 12.3: Market Orders
- 12.4: Limit Orders
- 12.5: Footprint Charts
- 12.6: Delta
- 12.7: Absorption
- 12.8: Order Flow Trading Strategies
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