An option quote is four numbers: the bid, the ask, and the size at each. Most traders read the two prices and skip the sizes. Reading a SPY options quote covers the whole line. This article is about the two numbers that get skipped.
What size is
Size is the number of contracts displayed at a price. A bid with a size of ten means buyers are showing interest in ten contracts at that bid. An order to sell more than the displayed size can fill in part at that price. The rest fills lower or waits, which is the mechanism behind partial fills.
Why it matters to a one-lot trader
For a single contract, displayed size rarely limits the fill. It still says something about the quote. A tight spread with real size on both sides is a market that many participants are standing behind. A wide spread with thin size on both sides is a quote that few are willing to trade at. The spread as a measure of quote trust makes the same point from the price side. Size is the second half of it.
Size is not a promise
Displayed size can change before an order arrives. Market makers refresh their quotes continuously and pull or shrink them when the index moves fast. The size on the screen describes one moment. An order sent against it may find less waiting than was shown, most often at exactly the times a scalper wants to trade.
Lopsided size
When the bid shows far more size than the ask, it is tempting to read it as buying pressure. It is a weak read. Displayed size is only the interest that participants choose to show, and some orders are built to hide, as iceberg and hidden orders explains. A lopsided quote can flip in a second without any trade taking place.
Using it before the order
Three checks take a moment. Is the order larger than the displayed size on the side it will hit? If so, it may not fill at one price, and slicing the order into smaller pieces is one response. Is the size thin on both sides? Then the midpoint is a soft number. Has the size just dropped? Then the quote is being pulled back, and the next one may be wider.
What size does not say
It does not show direction and it does not reveal who is behind the quote. It is a read on how firm the quoted prices are at this instant. For a trader whose costs are mostly spread and slippage, that makes it worth the extra glance.