You're right, actually. I learned it the hard way, lost $600 instead of making $400. Not that much but still I don't like to lose and mostly, when I was by all measure, winning. So I bought 10 lots of options at about 0.9 so $900. Next day they were worth $1300 so I thought $400 is not bad for a day of "work", so I'll sell them. I used to sell using limit orders but lately it seemed market order is more convenient, one click and it's done. Well, the moment I pressed the sell button, the option bid at $1.3 disappeared and I saw a 0.3 appearing. No fucking way, I thought, but it was fucking way. I sold my options worth at least $1000 (by intrinsic value) at $300. So hard lesson learned, never use market orders on an option market. Good thing I learned this with an order of $1000 and not $10k or more. Otherwise, it seems almost enraging how this can even be allowed! With stocks you have order collars in place enforced by the exchange so it's guaranteed even a market order won't execute too far away from the reference price. With options though there seems to be no protection whatsoever, you can place $1,000,000 dollars worth of sell @ market order and if there's no liquidity, someone on the buy side will offer $0.01 and take it. It's ridiculous, preposterous, wrong! Particularly when we're taking in the money options, where you have the hard base line of intrinsic value, it shouldn't be even allowed to trade below that. Well maybe a bit below but not this bullshit that's now in place!
The "Automated Trading" forum would have been too obvious. Oh... and OP used the term "stochastic process" to impress us, so here we are.
Which broker are you using? It seems that they either are also market maker on this option or they are selling what you type to the market maker.