# Option Price Improvement: Measuring Execution Quality

Measure option fills against a timestamped executable NBBO, aggregate partial executions, and separate price improvement from spread capture, delay, and non-fill cost.

Canonical: https://wiki.fcontext.com/options/option-price-improvement/
Fact checked: 2026-07-22

> For educational purposes only; not investment advice.

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## Direct answer

Option price improvement occurs when an order executes at a price better than the relevant executable benchmark available when the order reached the market. For a buy, lower is better; for a sell, higher is better:

`buy improvement = benchmark ask - fill price`

`sell improvement = fill price - benchmark bid`

Multiply per-unit improvement by the contract multiplier and filled quantity. A buy filled at `$2.12` against a timestamped `$2.00 bid / $2.20 ask` improves by `$0.08`, or `$8` for one 100-multiplier contract.

The trader's limit is not automatically the benchmark. Filling below a generous buy limit may satisfy the order without improving on the market. The comparison must preserve the quote, time, size, contract, and routing context.

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## Define the benchmark before calculating

Record the exact option series, side, quantity, order type, limit, time in force, submission and broker-receipt timestamps, contemporaneous NBBO with sizes, route or auction information, fills, fees, and cancellations.

The displayed NBBO is a starting point, not always a complete executable benchmark. Its size may cover only part of the order; quotes can change between observation and arrival; complex orders have a net package market; and adjusted contracts require the correct multiplier and deliverable.

For partial fills, use quantity-weighted average execution price:

`VWAP fill = Σ(fill price_i × quantity_i) / Σ(quantity_i)`

If the benchmark quote changes during a worked order, compare each fill with the valid benchmark at that fill or use a clearly defined arrival-price methodology. Do not compare all fills with whichever quote makes the result look best.

Price improvement is only one execution-quality component:

- **Quoted spread:** `ask - bid` at the benchmark time.
- **Effective spread for a buy:** `2 × (fill - midpoint)`; negative values indicate a fill better than midpoint.
- **Delay cost:** market movement while seeking a better price.
- **Opportunity cost:** intended quantity that never fills and its subsequent market outcome.
- **Fees and rebates:** can change net economics even when gross fill price improves.

A fast fill at the ask has zero price improvement against that ask but may be appropriate for urgent risk reduction. A patient limit may obtain improvement yet expose the account to non-fill or adverse market movement. Improvement should not be maximized in isolation.

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## One order, three measurements

A five-contract buy arrives when the option NBBO is `$2.00 × 20 / $2.20 × 10`. The trader's limit is `$2.18`. It fills two contracts at `$2.12` and three at `$2.16` while the benchmark ask remains `$2.20`.

`VWAP fill = [(2 × $2.12) + (3 × $2.16)] / 5 = $2.144`

`improvement per share = $2.20 - $2.144 = $0.056`

`gross improvement = $0.056 × 100 × 5 = $28`

The arrival midpoint was `$2.10`. Effective spread is:

`2 × ($2.144 - $2.10) = $0.088 per share`

The execution is better than the ask but worse than midpoint. Calling it a `$0.036` improvement because it filled below the `$2.18` limit would use the wrong benchmark; the limit describes the worst allowed price, not the competing displayed market.

Now assume a second five-contract order waits for `$2.10`, receives no fill, and the market moves to `$2.50 / $2.70`. It reports no execution and therefore no realized price improvement. If the position was still needed, the unfilled order created opportunity or delay cost that should be logged. A fill-only report would hide it.

For a two-leg spread, suppose the package market is `$1.40 bid / $1.55 ask` net debit and the package fills at `$1.50`. The meaningful gross buy improvement is `$0.05 × 100 = $5` per spread. Adding “improvement” measured separately on each leg can double count or use leg quotes that were never simultaneously executable.

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## Measurement and execution risks

- **Wrong benchmark:** a customer limit, stale quote, later midpoint, or model value is not the arrival NBBO.
- **Timestamp mismatch:** milliseconds can matter in a moving option market.
- **Size mismatch:** displayed best-price quantity may not cover the order.
- **Partial-fill bias:** measuring only favorable fills ignores remaining quantity.
- **Survivorship bias:** analyzing filled orders while excluding canceled and unfilled orders overstates quality.
- **Complex-order error:** leg-level comparisons can misstate package execution.
- **Fee omission:** routing, contract, exchange, and broker charges alter net improvement.
- **Market-impact omission:** the order itself can change available prices.
- **Adjusted-contract error:** multiplier or deliverable mistakes distort dollar results.
- **Urgency tradeoff:** waiting for improvement can leave a hedge or risk exit undone.
- **Adverse selection:** a favorable fill may occur just before the option value moves against the order.

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## Common misconceptions

- **“Any fill below my buy limit is price improvement.”** Improvement is measured against a defined market benchmark, not merely the limit.
- **“A midpoint fill is always fair.”** The midpoint may be stale or unsupported by size.
- **“More improvement always means better execution.”** Delay, non-fill, impact, and fees also matter.
- **“The displayed ask was available for my entire order.”** Its quoted size may be smaller.
- **“An unfilled order has zero execution cost.”** It may create opportunity and risk-management costs.
- **“Each spread leg's improvement can be added.”** The executable package is the proper benchmark for a complex order.
- **“Price improvement proves broker best execution.”** Best execution is a broader assessment than one fill statistic.
- **“A favorable fill predicts investment profit.”** Execution quality and subsequent market outcome are separate questions.

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## Related topics

- [Option fill-price playbook](/options/option-fill-price-playbook/)
- [Options NBBO and OPRA](/options/options-nbbo-opra/)
- [Options bid and ask](/options/bid-ask-options/)
- [Option order types](/options/option-order-types/)

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## Authoritative sources

- [Characteristics and Risks of Standardized Options](https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document) — OCC
- [Options Rule Book](https://www.cboe.com/us/options/regulation/rule_book/) — Cboe
- [Rule 5310: Best Execution and Interpositioning](https://www.finra.org/rules-guidance/rulebooks/finra-rules/5310) — FINRA
- [Types of Orders](https://www.investor.gov/introduction-investing/investing-basics/how-stock-markets-work/types-orders) — SEC Investor.gov