I can't imagine using market orders on option trades. I only use limit orders between the bid/ask, usually on the ask side for long and the bid side for short. It doesn't fill instantly but then again I don't daytrade. I for one believe in controlling costs in my trading business. Market fills are highway robbery in options.
It is an interesting micro-structure question is what happens if you place a limit order at 94. If you are looking at a contract with reasonable liquidity, sooner or later you will get done either because some M/M will sell at some other strike and will fill you at 94 (the usual case) or you might get crossed with another paper if somebody else wants this specific strike (less probable). My experience has been that some securities can be very wide on the screen yet you can get mid-market execution (e.g. SPX is the most obvious). On some other stuff, you get what you see.
Unless your order is larger than the quantity at the best bid or ask, a market order will fill instantly, generally at the worst possible price for you. If you're willing to buy at the best ask or sell at the best bid, you'll also generally get filled instantly (assuming the quantity is appropriate), unless your broker decides to send your order to an exchange that is quoting a price worse than the best bid or ask. Then it might sit for awhile. If you place a limit order between the best bid and ask, whether you get filled depends on the stock. Generally, the higher the volume of the stock and the higher the volume of options in the stock, the more likely you'll be able to get filled inside the spread. I was trading the October options for DV a couple weeks ago and never ever got filled inside the spread.
Can we somehow force MMs to reduce bid/ask spread? Petition SEC perhaps to make spreads no more than 1% of the contract value and do sub-pennies for smaller contracts or combos? Years ago Island & Co forced Nasdaq and NYSE to move from $1/16ths to 1c increments in stock prices. Is there a firm similar to them now that would do the same for options?
1% is a lot. I don't think there are any that are that wide, unless maybe when you get into <10 strikes.
What do you mean by "a lot"? I routinely see 10% or more spreads on some combos that I am interested in. For example, Sep 360/380 AZO strangle was 6.00/7.00 ($1 spread!) today. 1% would be 6.44/6.50. That's a fair spread.
I did not mean 1% of the strike price. I meant 1% of the total combo price. Compare that to stocks. A $20 stock usually trades with 1-5c spread. A $20 option, on the other hand may have a spread of $1. That's not right.
The order "should" be filled immediately - IF it is "marketable" - they cannot trade a price worse than your limit. If you place a limit order, just like stocks, if the price moves there, you're filled, if it doesn't, you're not. Don
I agree with that, but a lot of times the price will move to your price before you get filled inside and you will end up buying at the offer or selling at the bid anyway.