The Silent Killer — Commissions, Spreads, Slippage
"A large wound bleeds and you see it. A small wound every day kills without a sound."
The Real Cost of a Trade
You see a quoted premium of $2.50. You think your cost is $2.50 × 100 = $250 per contract. Wrong. Your cost is closer to $260, and that is before tax.
Take AAPL $175 call, mid-market $2.50:
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Bid: $2.45
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Ask: $2.55
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Mid: $2.50
If you submit a market order, you fill at the ask: $2.55. If you tried to sell immediately at market, you would fill at the bid: $2.45. The premium has not changed, but you have already lost $0.10 — the spread.
| Cost Item (1 contract, round trip) | Cost |
|---|---|
Spread tax (bid-ask cross) |
$0.10 × 100 = $10 |
Entry commission (Interactive Brokers, typical) |
$0.65 |
Exit commission |
$0.65 |
Exchange fees + ORF |
~$0.10 × 2 = $0.20 |
TOTAL FRICTION |
~$11.50 |
That $11.50 is what stands between you and the mid price. For the trade to be a winner, the option’s price must move favorably by more than $0.115 per share.
Now multiply by contracts traded per year. A modest 150-contract year is ~$1,725 of friction. An active 800-contract year is ~$9,200 of friction. This is before any losses on the trades themselves.
The Spread Tax
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The bid-ask spread is the invisible tax. On an illiquid option, the spread can be $0.50 or more — sometimes 30-50% of the entire premium. You pay this tax every time you cross it, both on entry and exit. If you trade 100 contracts a year and the average spread you cross is $0.20, you have paid $4,000 in spread tax alone — separate from commissions. That number compounds against your equity curve every year. |
This is why Chapter 4’s liquidity compass is a life-or-death matter, not a stylistic preference. You can win the strategy, win the direction, win the timing — and lose on the spread.
Slippage — Cost of Movement
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If you use market orders: you pay the full spread.
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If you use limit orders: you may not fill if the price moves favorably. You will fill if it moves adversely. (This is adverse selection — your limit fills are disproportionately bad fills.)
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The ideal target is to fill near the mid (e.g. submit a limit at $2.50 between a $2.45 bid and $2.55 ask). Whether you get the mid depends on whether a market maker is willing to meet you halfway — usually they will, on a liquid name.
Tactical practices (synthesizing market-microstructure conventions):
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On opens, work limits at mid; nudge by $0.01 every 15-30 seconds if needed.
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On exits, the opposite — work mid limits away from the market and let the market come to you.
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On multi-leg structures (spreads, condors), submit net limit prices, not individual legs. The market routes you to the best available combined execution.
Commission Structures
| Broker Type | Typical | Note |
|---|---|---|
Discount US (IB, Tastytrade) |
$0.50 – $0.65 / contract |
Volume discounts available |
Zero-commission (Robinhood, Webull) |
$0 / contract |
Pay through PFOF — slippage instead |
Premium broker (Fidelity, Schwab) |
$0.65 / contract |
Higher quality platform |
Per-trade ticket (older firms) |
$5.95 + $0.75/contract |
Becoming rare |
A Real-Year Friction Calculation
Take an active retail options trader. Their year:
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250 contracts traded.
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Average bid-ask spread crossed: $0.15.
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Discount broker: $0.65 / contract.
| Cost Component | Annual Total |
|---|---|
Spread tax: 250 × ($0.15 × 100) |
$3,750 |
Round-trip commissions: 250 × ($0.65 × 2) |
$325 |
Exchange fees + ORF |
~$50 |
TOTAL FRICTION |
~$4,125 |
If this trader’s gross P&L was $8,000*, their net was *$3,875. Half their gross gain was friction.
The wise question is not "How do I trade more?" but "How do I trade less, more deliberately?"