OPTIONS Bid+Ask

[Marcelo Martinez <marcelom@xxxxxxxxxxxxx>]

For any OPTIONS experts :

How exactly are options Bid / Ask determined?

I do real time hedging (spreads ), but I go in one leg at a time.

When the Bid / Ask changes , who changes them ?: the market maker ? , an
incoming Bid/ask limit order? or both ? I have tracked for the last
couple of weeks exactly where in the Bid / ask spread the order came in
and what volume. I have notice in some cases they hover around the bid
and sometimes around the ask. I have also seen large quatities of
contracts outside the bid /ask spread. How thus that happen ?

When there is a lot of activity, there is a somewhat even distribution
from outside the bid all the way to outside the ask.

When there is a trade at the ask does that mean that it is likely that
it was a buy order from the puplic and the market maker sold at the ask
? The other side scenerio being similar?

If you execute a spread where do the corresponding bid / ask prices lie
? it it better to leg one side at a time or not ?

Sounds like a lot of stuff.

Thanks.

Marcelo