Illiquid options trading

Trading Illiquid Options.

The Dangers and Drawbacks of Low Volume Stock Options.

An important lesson to learn for successful option trading is the recognition of the drawbacks of trading illiquid options .

Now, technically, stock options with low daily volumes or low open interest (both of which can be seen on an option chain, such as with the examples below) are not themselves illiquid. It's the low volume or illiquid underlying shares that leads to limited trading activity on the options.

But for all practical purposes, I'm going to equate illiquid stock options with options that have subdued trading activity.

And the primary drawback on illiquid options is that you're going to get poor pricing when you initiate or adjust an option position.

The most obvious drawback to trading low volume stock options is a wide bid-ask spread.

When not a lot of options are being traded, or rather when not a lot of the underlying shares are changing hands, then you're going to be more at the mercy of the market makers, who also need to protect themselves from a low liquidity environment, and who often incorporate trades in the underlying shares as a way to hedge themselves when processing your order.

Here are a couple of examples for you to see for yourself - in the first one, JNJ was trading around $67.65/share at the time of this option chain screen print:

Now, unlike the JNJ (Johnson & Johnson) stock option example, where the at the money bid-ask spread is merely one cent, KIM (Kimco Realty) has much less volume, and as a result, you can see that the bid-ask spread is much wider, meaning than when you initiate a trade or attempt to adjust one, the market maker is going to take a significant cut:

Option Pricing Factors.

To be fair, there are a number of factors that are involved in the bid-ask spread. It's not just volume in the underlying or activity in the options market itself.

But in a way, some of those factors are related to one another.

Take the JNJ example where the options are priced in $0.01 increments. The one cent increments has more to do with JNJ being a highly liquid mega cap company on which a lot of options are traded.

But that the at the money bid-ask spread is only $0.01 itself ($0.60-$0.61) is indication enough that even if the options were priced in $0.05 increments, that the pricing would be a lot more efficient (and attractive to option traders) than they are on a lower volume stock such as KIM.

Adjusting and Rolling Illiquid Stock Options.

To me, the bigger problem with trading illiquid options isn't so much with the initiation of the trade but rather when it comes time to adjust or roll your position.

The way I trade options, I know to the penny and the annualized rate what my returns will be on that portion of a trade (I typically view option trades as more of a campaign or series of trades rather than a one time event). So, in that regard, even if the pricing isn't ideal, I know in advance what the numbers are and whether those terms will be acceptable to me.

But what happens if the trade goes against me? Because I focus on high quality companies and set up trades with true structural advantages, I almost never book a loss - instead, I'll roll and adjust the position to my long term advantage while continuing to book additional premium income throughout the life of the trade (or series of trades).

But in my experience, those adjustments and rolls are more challenging when dealing with options that have large bid-ask spreads. Poor pricing can mean the difference between rolling an underwater trade for still decent returns and rolling one for paltry returns (i. e. dead money).

And it's not just the wide big-ask spread that makes it more difficult. With lightly traded stocks and options, LEAPS (longer dated options with expiration dates 9 months to 2 1/2 years away) are usually not available.

The less flexibility you have when rolling or adjusting a trade, the bigger the headwind there will be to your ultimate success.

That's not to say that you should never trade an illiquid option (I actually held a 3 contract naked put position on KIM at the time of this writing), but you do need to recognize the structural disadvantages to doing so.

Five Mistakes to Avoid When Trading Options.

(Especially since after reading this, you'll have no excuse for.

We’re all creatures of habit — but some habits are worth breaking. Option traders of every level tend to make the same mistakes over and over again. And the sad part is, most of these mistakes could have been easily avoided.

In addition to all the other pitfalls mentioned in this site, here are five more common mistakes you need to avoid. After all, trading options isn’t easy. So why make it harder than it needs to be?

MISTAKE 1: Not having a defined exit plan.

You’ve probably heard this one a million times before. When trading options, just as when you’re trading stocks, it’s critical to control your emotions. That doesn’t necessarily mean you need to have ice flowing through your veins, or that you need to swallow your every fear in a superhuman way.

It’s much simpler than that: Always have a plan to work, and always work your plan. And no matter what your emotions are telling you to do, don’t deviate from it.

How you can trade smarter.

Planning your exit isn’t just about minimizing loss on the downside if things go wrong. You should have an exit plan, period – even when a trade is going your way. You need to choose your upside exit point and downside exit point in advance.

But it’s important to keep in mind, with options you need more than upside and downside price targets. You also need to plan the time frame for each exit.

Remember: Options are a decaying asset. And that rate of decay accelerates as your expiration date approaches. So if you’re long a call or put and the move you predicted doesn’t happen within the time period expected, get out and move on to the next trade.

Time decay doesn’t always have to hurt you, of course. When you sell options without owning them, you’re putting time decay to work for you. In other words, you’re successful if time decay erodes the option’s price, and you get to keep the premium received for the sale. But keep in mind this premium is your maximum profit if you’re short a call or put. The flipside is that you are exposed to potentially substantial risk if the trade goes awry.

The bottom line is: You must have a plan to get out of any trade no matter what kind of strategy you’re running, or whether it’s a winner or a loser. Don't wait around on profitable trades because you're greedy, or stay way too long in losers because you’re hoping the trade will move back in your favor.

What if you get out too early and leave some upside on the table?

This is the classic trader’s worry, and it’s often used as a rationale for not sticking with an original plan. Here’s the best counterargument we can think of: What if you profit more consistently, reduce your incidence of losses, and sleep better at night?

Trading with a plan helps you establish more successful patterns of trading and keeps your worries more in check. Sure, trading can be exciting, but it’s not about one-hit wonders. And it shouldn’t be about getting ulcers from worry, either. So make your plan in advance, and then stick to it like super glue.

MISTAKE 2: Trying to make up for past losses by “doubling up”

Traders always have their ironclad rules: “I’d never buy really out-of-the-money options,” or “I’d never sell in-the-money options.” But it’s funny how these absolutes seem obvious — until you find yourself in a trade that’s moved against you.

We’ve all been there. Facing a scenario where a trade does precisely the opposite of what you expect, you’re often tempted to break all kinds of personal rules and simply keep on trading the same option you started with. In such cases, traders are often thinking, “Wouldn’t it be nice if the entire market was wrong, not me?”

As a stock trader, you’ve probably heard a justification for “doubling up to catch up”: if you liked the stock at 80 when you first bought it, you’ve got to love it at 50. So it can be tempting to buy more shares and lower the net cost basis on the trade. Be wary, though: What can sometimes make sense for stocks oftentimes does not fly in the options world.

How you can trade smarter.

“Doubling up” on an options strategy almost never works. Options are derivatives, which means their prices don’t move the same way or even have the same properties as the underlying stock.

Although doubling up can lower your per-contract cost basis for the entire position, it usually just compounds your risk. So when a trade goes south and you’re contemplating the previously unthinkable, just step back and ask yourself: “If I didn’t already have a position in place, is this a trade I would make?” If the answer is no, then don’t do it.

Close the trade, cut your losses, and find a different opportunity that makes sense now. Options offer great possibilities for leverage using relatively low capital, but they can blow up quickly if you keep digging yourself deeper. It’s a much wiser move to accept a loss now instead of setting yourself up for a bigger catastrophe later.

MISTAKE 3: Trading illiquid options.

When you get a quote for any option in the marketplace, you’ll notice a difference between the bid price (how much someone is willing to pay for an option) and the ask price (how much someone is willing to sell an option for).

Oftentimes, the bid price and the ask price do not reflect what the option is really worth. The “real” value of the option will actually be somewhere near the middle of the bid and ask. And just how far the bid and ask prices deviate from the real value of the option depends on the option’s liquidity.

“Liquidity” in the market means there are active buyers and sellers at all times, with heavy competition to fill transactions. This activity drives the bid and ask prices of stocks and options closer together.

The market for stocks is generally more liquid than their related options markets. That’s because stock traders are all trading just one stock, whereas people trading options on a given stock have a plethora of contracts to choose from, with different strike prices and different expiration dates.

At-the-money and near-the-money options with near-term expiration are usually the most liquid. So the spread between the bid and ask prices should be narrower than other options traded on the same stock. As your strike price gets further away from the at-the-money strike and / or the expiration date gets further into the future, options will usually be less and less liquid. Consequently, the spread between the bid and ask prices will usually be wider.

Illiquidity in the options market becomes an even more serious issue when you’re dealing with illiquid stocks. After all, if the stock is inactive, the options will probably be even more inactive, and the bid-ask spread will be even wider.

Imagine you’re about to trade an illiquid option that has a bid price of $2.00 and an ask price of $2.25. That 25-cent difference might not seem like a lot of money to you. In fact, you might not even bend over to pick up a quarter if you saw one in the street. But for a $2.00 option position, 25 cents is a full 12.5% of the price!

Imagine sacrificing 12.5% of any other investment right off the bat. Not too appealing, is it?

How you can trade smarter.

First of all, it makes sense to trade options on stocks with high liquidity in the market. A stock that trades fewer than 1,000,000 shares a day is usually considered illiquid. So options traded on that stock will most likely be illiquid too.

When you’re trading, you might want to start by looking at options with open interest of at least 50 times the number of contacts you want to trade. For example, if you’re trading 10 contracts, your minimum acceptable liquidity should be 10 x 50, or an open interest of at least 500 contracts.

Obviously, the greater the volume on an option contract, the closer the bid-ask spread is likely to be. Remember to do the math and make sure the width of the spread isn’t eating up too much of your initial investment. Because while the numbers may seem insignificant at first, in the long run they can really add up.

Instead of trading illiquid options on companies like Joe’s Tree Cutting Service, you might as well trade the stock instead. There are plenty of liquid stocks out there with opportunities to trade options on them.

MISTAKE 4: Waiting too long to buy back short strategies.

We can boil this mistake down to one piece of advice: Always be ready and willing to buy back short strategies early. When a trade is going your way, it can be easy to rest on your laurels and assume it will continue to do so. But remember, this will not always be the case. A trade that’s working in your favor can just as easily turn south.

There are a million excuses traders give themselves for waiting too long to buy back options they’ve sold: “I’m betting the contract will expire worthless.” “I don’t want to pay the commission to get out of the position.” “I’m hoping to eke just a little more profit out of the trade”… the list goes on and on.

How you can trade smarter.

If your short option gets way out-of-the-money and you can buy it back to take the risk off the table profitably, then do it. Don’t be cheap.

Here's a good rule-of-thumb: if you can keep 80% or more of your initial gain from the sale of an option, consider buying it back immediately. Otherwise, one of these days a short option will come back and bite you when you’ve waited too long to close your position.

For example, if you sold a short strategy for $1.00 and you can buy it back for 20 cents a week before expiration, you should jump on the opportunity. Very rarely will it be worth an extra week of risk just to hang onto a measly 20 cents.

This is also the case with higher-dollar trades, but the rule can be harder to stick to. If you sold a strategy for $5.00 and it would cost $1.00 to close, it can be even more tempting to stay in your position. But think about the risk / reward. Option trades can go south in a hurry. So by spending the 20% to close out trades and manage your risk, you can save yourself many painful slaps to the forehead.

MISTAKE 5: Legging into spread trades.

“Legging in” is when you enter the different legs of a multi-leg trade one at a time. If you’re trading a long call spread, for example, you might be tempted to buy the long call first and then try to time the sale of the short call with an uptick in the stock price to squeeze another nickel or two out of the second leg.

However, oftentimes the market will downtick instead, and you won’t be able to pull off your spread at all. Now you’re stuck with a long call with no way to hedge your risk.

How you can trade smarter.

Every trader has legged into spreads before — but don't learn your lesson the hard way. Always enter a spread as a single trade. It’s just foolish to take on extra market risk needlessly.

When you use Ally Invest’s spread trading screen, you can be sure all legs of your trade are sent to market simultaneously, and we won’t execute your spread unless we can achieve the net debit or credit you’re looking for. It’s simply a smarter way to execute your strategy and avoid any extra risk.

(Just keep in mind that multi-leg strategies are subject to additional risks and multiple commissions and may be subject to particular tax consequences. Please consult with your tax advisor prior to engaging in these strategies.)

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from Ally Invest’s experts.

Options involve risk and are not suitable for all investors. For more information, please review the Characteristics and Risks of Standardized Options brochure before you begin trading options. Options investors may lose the entire amount of their investment in a relatively short period of time.

Multiple leg options strategies involve additional risks, and may result in complex tax treatments. Please consult a tax professional prior to implementing these strategies. Implied volatility represents the consensus of the marketplace as to the future level of stock price volatility or the probability of reaching a specific price point. The Greeks represent the consensus of the marketplace as to how the option will react to changes in certain variables associated with the pricing of an option contract. There is no guarantee that the forecasts of implied volatility or the Greeks will be correct.

Ally Invest provides self-directed investors with discount brokerage services, and does not make recommendations or offer investment, financial, legal or tax advice. System response and access times may vary due to market conditions, system performance, and other factors. You alone are responsible for evaluating the merits and risks associated with the use of Ally Invest’s systems, services or products. Content, research, tools, and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, are not guaranteed for accuracy or completeness, do not reflect actual investment results and are not guarantees of future results. All investments involve risk, losses may exceed the principal invested, and the past performance of a security, industry, sector, market, or financial product does not guarantee future results or returns.

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Trading Illiquid Option Markets.

You Against the Market Maker.

While the options market changes fast, some information can still be useful for traders years later. In 2007, someone asked the following question :

I am trying to establish a position in an option that it not very liquid . It's so illiquid that I am the only person trading these options. Every time I place an order it is partially filled, then the price is bumped higher. My orders alone have caused the price to double from $.40 to $.80. The options started off no-bid, offered at $.40. Now the option market is my bid, offered at $.80. Am I better off placing one large order or several smaller orders to enter the trade efficiently? How can I avoid having my own orders drive up the price?

My Reply: These questions are reasonable for an inexperienced trader. The reply contains some very basic — and obvious — ideas that I urge you to understand before you attempt to earn any money by trading options.

At the outset, let me state that you cannot continue to trade options on this underlying asset, unless your goal is to throw your cash into the garbage.

1. You cannot avoid seeing your orders drive up the price because there is no traditional market here. There is no supply and demand. It is only you (the only buyer) and the market maker (MM) who is the only seller. That market maker can ask whatever he wants to ask because there is no competition. It does not matter whether you enter one larger order of several smaller ones because you cannot coerce the market maker to sell more options than he wants to sell. Conclusion: Stop trading these options.

2. When you buy an option, the primary method for earning a profit involves selling that option at a higher price.

I know that seems trite, but it is the mechanism by which trading works. If you are having so much difficulty, and frustration, when buying the options, imagine how you will feel when the time comes to sell. The MM will drop his bid and you will never be able to sell at a reasonable price. When that market maker knows that no other trader will come along to buy your options, he can bid whatever he want to bid.

Your only choices will be to sell at the MM's price, or hold onto the options. This is a bad deal for anyone.

When buying options, the plan is to sell those options at a higher price to generate a profit. But the MM is the only buyer, and is not forced to bid an attractive (to your) price. That is how a monopoly works.

If you change your mind on the future direction of the stock price, and want to salvage a portion of your investment, you must be able to sell those options, even at a loss. In this scenario, no one will buy your options. If your expectations (big rally fail to come true, you would lose 100 percent of your investment when no trader is willing to take the position off your hands.

Thus, because you must depend on selling your options, there must be someone to buy them. In your example, there is no other person to whom you can unload the position, except the market maker. Most of the time, market makers do a fine job and offer reasonable bid and ask prices at which you can trade. However, that is clearly not true with the example cited. Remember that the MM can act this way only because there is no liquidity.

This is not viable. The situation ought to feel so bad that you would never buy options on this stock — at least not until they become far more liquid. If you truly expect the stock price to soar, ask yourself: Is your track record so good that you can afford to wager cash when the odds of earning a profit are stacked against you.

This MM has no interest in trading the options.

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That is obvious from a zero bid to an asking price of $0.40. The fact that you would even consider paying that $0.40 demonstrates that you do not yet grasp the concept of ever getting out of this trade. Sure the option market looks good with your purchase price being the bid. But, as soon as you try to hit the bid, it will disappear and the market will revert to no bid; $0.40 asked.

3. Liquidity is essential. Repeat: Liquidity is mandatory. You have no chance to win when you are the only trader, or even when you are one of few. If the market maker(s) do not offer a tight (i. e., narrow) bid/ask spread , then you should not trade the options. If you have very strong feelings about the direction of an upcoming stock price change, then trade stock. I know that options offer great advantages over trading stock, but when you cannot get a fair deal when buying and selling the options — when there is no one to take positions off your hands at a reasonable price — then it is highly unlikely that you can come out ahead. If the MM does not maintain a fair and orderly market where participants get a fair shot, then do not do business with him. Do you go back to a restaurant with rude wait staff or terrible food?

4. It is reasonable for large orders to move markets. However, it is unreasonable for your order to bump the asking price so far. If the new ask were $0.45 or $0.50, that would be acceptable, and a common, occurrence. This MM does not want to sell these options at any price, and his $0.80 offer should make that clear.

5. Buying out-of-the-money options is usually a poor strategy. Especially in this example where there was no bid until you arrived on the scene. Unless the stock undergoes a very large price change, the bid (when your buy order is absent) is going to revert to zero, or near zero. And you can be confident that as soon as you try to sell the options that you own, the bid will be zero. Of course, if the MM who sold those options to you wants to cover his position, then he may bid $0.05 or $0.10. However, there is no chance that he will provide a fair bid when he knows that no one else will ever make a bid for your options. In other words, the extreme non-liquidity of these options assures the MM that he is the only bid and that he has no competition. In that world, he does not have to make a serious bid because his is the only bid.

Most market makers do a good job and, despite being in the game to make money, will give you (and other traders) a reasonably fair deal. However, when the bid/ask market behaves as it does in this scenario, know that this is a bad market maker and that you are doomed to lose money if you do business with him. You cannot get a fair price from someone who does not want to make a market (i. e., buy and sell) these options.

6. When you see a narrow bid-ask spread, such as $0.60 to $0.65 or even $0.60 to $0.70, you know that it is relatively safe to enter the fray. However, when the bid/ask is wide — and especially when the bid is zero — you should avoid playing.

Now that you are bidding $0.40 for more options, the MM raised the offer to an unbelievable level of $0.80. I guarantee that if you had the slightest idea of how to value an option, you would understand that 80-cents is not a real-world price. Your question makes it seem as if you would consider buying more at that elevated price, but I hope that you would never do that unless the stock price zoomed higher and that $0.80 represented a reasonable value for that option.

Just because the offer is 80 cents, it does not mean that you must (or should) pay 80 cents to buy options. It is almost never right to pay the asking price when buying options. Instead, a trader should enter a limit order with a bid that is above the current bid, but below the current ask. That plan works often enough that it will save you a lot of money over your trading career. In this case, you would not be able to buy the options. But that is a good thing.

Stick with moderately to actively traded options. You do not need bid/ask spreads to be only 5-cents wide, but even 20-cents for very low-priced options can be a warning sign.

Trading Illiquid Option Markets.

Trading Illiquid Option Markets explained by professional Forex trading experts the “ForexSQ” FX trading team.

Trading Illiquid Option Markets.

While the options market changes fast, some information can still be useful for traders years later. In 2007, someone asked the following question :

I am trying to establish a position in an option that it not very liquid . It’s so illiquid that I am the only person trading these options. Every time I place an order it is partially filled, then the price is bumped higher. My orders alone have caused the price to double from $.40 to $.80. The options started off no-bid, offered at $.40. Now the option market is my bid, offered at $.80. Am I better off placing one large order or several smaller orders to enter the trade efficiently? How can I avoid having my own orders drive up the price?

My Reply: These questions are reasonable for an inexperienced trader. The reply contains some very basic — and obvious — ideas that I urge you to understand before you attempt to earn any money by trading options.

At the outset, let me state that you cannot continue to trade options on this underlying asset, unless your goal is to throw your cash into the garbage.

1. You cannot avoid seeing your orders drive up the price because there is no traditional market here. There is no supply and demand. It is only you (the only buyer) and the market maker (MM) who is the only seller. That market maker can ask whatever he wants to ask because there is no competition. It does not matter whether you enter one larger order of several smaller ones because you cannot coerce the market maker to sell more options than he wants to sell. Conclusion: Stop trading these options.

2. When you buy an option, the primary method for earning a profit involves selling that option at a higher price.

I know that seems trite, but it is the mechanism by which trading works. If you are having so much difficulty, and frustration, when buying the options, imagine how you will feel when the time comes to sell. The MM will drop his bid and you will never be able to sell at a reasonable price. When that market maker knows that no other trader will come along to buy your options, he can bid whatever he want to bid.

Your only choices will be to sell at the MM’s price, or hold onto the options. This is a bad deal for anyone.

Yes, you can hope to make money when the stock price soars higher (I assume you are using call options, but a similar argument applies when buying puts) and the option moves far into the money. If that happens, there is no need to sell the options and therefore, no need to be concerned with the market maker. In that scenario, exercise the option (before it expires) and immediately sell the stock. In this situation, you cannot be denied your profit by the MM. However, unless you are a spectacular stock picker, these large increases in the stock price will be quite rare. Do not depend on earning money this way.

When buying options, the plan is to sell those options at a higher price to generate a profit. But the MM is the only buyer, and is not forced to bid an attractive (to your) price. That is how a monopoly works.

If you change your mind on the future direction of the stock price, and want to salvage a portion of your investment, you must be able to sell those options, even at a loss. In this scenario, no one will buy your options. If your expectations (big rally fail to come true, you would lose 100 percent of your investment when no trader is willing to take the position off your hands.

Thus, because you must depend on selling your options, there must be someone to buy them. In your example, there is no other person to whom you can unload the position, except the market maker. Most of the time, market makers do a fine job and offer reasonable bid and ask prices at which you can trade. However, that is clearly not true with the example cited. Remember that the MM can act this way only because there is no liquidity.

This is not viable. The situation ought to feel so bad that you would never buy options on this stock — at least not until they become far more liquid. If you truly expect the stock price to soar, ask yourself: Is your track record so good that you can afford to wager cash when the odds of earning a profit are stacked against you.

This MM has no interest in trading the options.

That is obvious from a zero bid to an asking price of $0.40. The fact that you would even consider paying that $0.40 demonstrates that you do not yet grasp the concept of ever getting out of this trade. Sure the option market looks good with your purchase price being the bid. But, as soon as you try to hit the bid, it will disappear and the market will revert to no bid; $0.40 asked.

3. Liquidity is essential. Repeat: Liquidity is mandatory. You have no chance to win when you are the only trader, or even when you are one of few. If the market maker(s) do not offer a tight (i. e., narrow) bid/ask spread , then you should not trade the options. If you have very strong feelings about the direction of an upcoming stock price change, then trade stock. I know that options offer great advantages over trading stock, but when you cannot get a fair deal when buying and selling the options — when there is no one to take positions off your hands at a reasonable price — then it is highly unlikely that you can come out ahead. If the MM does not maintain a fair and orderly market where participants get a fair shot, then do not do business with him. Do you go back to a restaurant with rude wait staff or terrible food?

4. It is reasonable for large orders to move markets. However, it is unreasonable for your order to bump the asking price so far. If the new ask were $0.45 or $0.50, that would be acceptable, and a common, occurrence. This MM does not want to sell these options at any price, and his $0.80 offer should make that clear.

5. Buying out-of-the-money options is usually a poor strategy. Especially in this example where there was no bid until you arrived on the scene. Unless the stock undergoes a very large price change, the bid (when your buy order is absent) is going to revert to zero, or near zero. And you can be confident that as soon as you try to sell the options that you own, the bid will be zero. Of course, if the MM who sold those options to you wants to cover his position, then he may bid $0.05 or $0.10. However, there is no chance that he will provide a fair bid when he knows that no one else will ever make a bid for your options. In other words, the extreme non-liquidity of these options assures the MM that he is the only bid and that he has no competition. In that world, he does not have to make a serious bid because his is the only bid.

Most market makers do a good job and, despite being in the game to make money, will give you (and other traders) a reasonably fair deal. However, when the bid/ask market behaves as it does in this scenario, know that this is a bad market maker and that you are doomed to lose money if you do business with him. You cannot get a fair price from someone who does not want to make a market (i. e., buy and sell) these options.

6. When you see a narrow bid-ask spread, such as $0.60 to $0.65 or even $0.60 to $0.70, you know that it is relatively safe to enter the fray. However, when the bid/ask is wide — and especially when the bid is zero — you should avoid playing.

In your example, the ask price was $0.40. That is outrageous when the bid is zero. The 40-cent wide spread is unusual and is a blatant warning that the game (in these options) is rigged. Look at what happened. You bid the ask price and bought some options. Question: Do you have any idea of the true value of these options? Did you use an option calculator to get a reasonable estimate of what the option was worth? Do you have an idea of what factors determine the market value of an option, or did you just buy these options because you were bullish on the stock? Let me assure you that buying the wrong (i. e., the option that is not the best for your outlook) is the number one reason that option buyers lose money.

Now that you are bidding $0.40 for more options, the MM raised the offer to an unbelievable level of $0.80. I guarantee that if you had the slightest idea of how to value an option, you would understand that 80-cents is not a real-world price. Your question makes it seem as if you would consider buying more at that elevated price, but I hope that you would never do that unless the stock price zoomed higher and that $0.80 represented a reasonable value for that option.

Just because the offer is 80 cents, it does not mean that you must (or should) pay 80 cents to buy options. It is almost never right to pay the asking price when buying options. Instead, a trader should enter a limit order with a bid that is above the current bid, but below the current ask. That plan works often enough that it will save you a lot of money over your trading career. In this case, you would not be able to buy the options. But that is a good thing.

Stick with moderately to actively traded options. You do not need bid/ask spreads to be only 5-cents wide, but even 20-cents for very low-priced options can be a warning sign.